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Arif Syed, Jane Melanie, Sally Thorpe and Kate Penney

ABARE research report 10.02


March 2010
Australian energy
projections to 2029-30
ii
Commonwealth of Australia 2010
This work is copyright. The Copyright Act 1968 permits fair dealing for study, research, news
reporting, criticism or review. Selected passages, tables or diagrams may be reproduced for
such purposes provided acknowledgment of the source is included. Major extracts or the
entire document may not be reproduced by any process without the written permission of the
Executive Director, ABARE.
ISSN 1447-8358
ISBN 978-1-921448-66-9
Syed, A, Melanie, J, Thorpe, S and Penney, K 2010, Australian energy projections to 2029-30,
ABARE research report 10.02, prepared for the Department of Resources, Energy and Tourism,
Canberra, March.
Australian Bureau of Agricultural and Resource Economics
Postal address GPO Box 1563 Canberra ACT 2601 Australia
Location 7B London Circuit Canberra ACT 2601
Switchboard +61 2 6272 2000
Facsimile +61 2 6272 2001
ABARE is a professionally independent government economic research agency.
ABARE project 1644
Acknowledgments
This report was undertaken with the support of the Australian Government Department of
Resources, Energy and Tourism.
The authors appreciate the contributions of the following people, who assisted with various
aspects of the project: Allison Ball, Alan Copeland, Clara Cuevas-Cubria, Trish Gleeson, Apsara
Maliyasena, Paul Morris, Hom Pant, Jammie Penm, Andrew Schultz and Terry Sheales, all
of ABARE. The authors are also grateful for the valuable input and comments provided by
colleagues from the Department of Resources, Energy and Tourism, the Australian Treasury,
and Geoscience Australia.
The preparation of this report also benefited from valuable insights and information
provided by a range of agencies that participated in the consultation program. These
include the Australian Energy Market Commission (AEMC); the Australian Energy Market
Operator (AEMO); the Australian Energy Regulator (AER); the Energy Supply Association of
Australia (ESAA); the New South Wales Department of Water and Energy; Primary Industry
and Resources of South Australia (PIRSA); the Queensland Department of Mines and Energy;
the South Australian Department for Transport, Energy and Infrastructure; Vencorp; and the
Victorian Department of Primary Industries.
iii
Contents
Summary 1
1 Introduction 4
2 The Australian energy context 6
Energy resources and markets 6
Energy policy 9
3 Methodology and key assumptions 13
The E
4
cast model 13
E
4
cast base year data 16
Key assumptions 18
4 Energy consumption 26
Total primary energy consumption 26
Primary energy consumption, by fuel 27
Primary energy consumption, by state 28
Primary energy consumption, by sector 29
Electricity generation 30
Final energy consumption, by fuel 36
Final energy consumption, by sector 37
5 Energy production and trade 41
Black coal production and exports 42
Natural gas production and LNG exports 44
Crude oil production and net imports 46
6 Conclusions 48
References 49
Australian energy projections to 2029-30 abare.gov.au 10.02
iv
Boxes
1 Key features of E
4
cast 15
2 ABAREs Australian energy statistics 17
Figures
a Australian energy production 7
b Australian intensity of energy consumption 8
c Australian energy exports 8
d Energy forecasting model 14
e Indexes of world real energy prices 19
f Technology ranking, 2015 21
g Technology ranking, 2030 22
h Index of real levelised cost of electricity generation technologies excluding carbon
emission costs 23
i Energy intensity trends 27
j Energy balance 42
k Black coal balance 43
l Gas balance 44
m Oil and LPG balance 47
Tables
1 Fuel coverage in E
4
cast 13
2 Industry coverage in E
4
cast 16
3 Australian population assumptions 18
4 Australian economic growth, by region 19
5 RET targets 24
6 Carbon price assumptions 24
7 Primary energy consumption, by fuel 27
8 Primary energy consumption, by state 28
9 Primary energy consumption, by sector 29
10 Electricity generation, by state 31
11 Electricity generation, by fuel 34
12 Final energy consumption, by fuel 37
13 Final energy consumption, by sector 38
14 Final energy consumption, by manufacturing subsector 39
15 Energy production, by fuel 41
16 Net trade in energy 43
17 Australian gas markets 45
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Australian energy projections to 2029-30 abare.gov.au 10.02
Maps
1 Distribution of Australias energy resources, ports and pipelines 6
2 Minerals and energy - major development projects 31
3 Electricity generation - major development projects 33

vi
Foreword
This report is an example of ABAREs ongoing commitment to providing information related
to the Australian energy sector to support decision-making by industry, government and
the broader community. Australian energy projections to 2029-30 provides long-term
projections of Australian energy consumption, production and trade.
Since the previous long-term projections were published by ABARE in December 2007,
significant developments have occurred that are likely to shape Australias energy future.
Concerns over climate change and energy security have given rise to new energy policy
settings, both domestically and internationally. At the same time, the global financial crisis
and the subsequent global economic downturn saw a significant contraction in energy
demand and prices.
This report aims to encapsulate these recent developments in providing long-term
projections of Australian energy consumption, production and trade for the period from
2007-08 to 2029-30. The results suggest that the Australian energy sector is at an important
junction as it adjusts to a long-term growth trajectory within a carbon constrained economy.
Even though Australia is endowed with vast renewable and non-renewable energy
resources, the challenges inherent in this transformation are likely to be significant.
The dynamics of energy markets over the past few years clearly highlight the risks associated
with any long-term forecasting. Further, technology is constantly evolving. Nonetheless, it
is hoped the outlook presented here will assist decision-makers in delivering an efficient,
secure and sustainable energy future for Australia.


Phillip Glyde
Executive Director
March 2010
vii
Glossary
Bagasse The fibrous residue of the sugar cane milling process that is used as a
fuel (to raise steam) in sugar mills.
Biogas Landfill (garbage tips) gas and sewage gas.
Coal by-products By-products such as coke oven gas, blast furnace gas (collected from
steelworks blast furnaces), coal tar and benzene/toluene/xylene (BTX)
feedstock. Coal tar and BTX are both collected from the coke making
process.
Conversion The process of transforming one form of energy into another before
use. Conversion itself consumes energy. For example, some natural gas
and liquefied petroleum gas is consumed during gas manufacturing,
some petroleum products are consumed during petroleum refining,
and various fuels, including electricity itself, are consumed when
electricity is generated. The energy consumed during conversion is
calculated as the difference between the energy content of the fuels
consumed and that of the fuels produced.
Gas Gases that include commercial quality sales gas, liquefied natural gas,
ethane, methane (including coal seam and mine mouth methane and
gas from garbage tips and sewage plants) and plant and field use of
non-commercial quality gas. In this report, natural gas also includes
town gas (including synthetic natural gas, reformed gas, tempered
liquid petroleum gas and tempered natural gas).
Gas pipeline operation Natural gas used in pipeline compressors, and losses, operation and
leakage during transmission.
Levelised cost The total levelised cost of production represents the revenue per
unit of electricity generated that must be met to break even over the
lifetime of a plant.
Petajoule The joule is the standard unit of energy in electronics and general
scientific applications. One joule is the equivalent of one watt of
power radiated or dissipated for one second. One petajoule, or 278
gigawatt hours, is the heat energy content of about 43 000 tonnes of
black coal or 29 million litres of petrol.
Petroleum Crude oil and natural gas condensate used directly as fuel, liquefied
petroleum gas, refined products used as fuels (aviation gasoline,
automotive gasoline, power kerosene, aviation turbine fuel, lighting
kerosene, heating oil, automotive diesel oil, industrial diesel fuel, fuel
oil, refinery fuel and naphtha) and refined products used in nonfuel
applications (solvents, lubricants, bitumen, waxes, petroleum coke
for anode production and specialised feedstocks). The distinction
Australian energy projections to 2029-30 abare.gov.au 10.02
viii
between the consumption of petroleum at the primary and final end
use stages relates only to where the petroleum is consumed, not to
the mix of different petroleum products consumed. The consumption
of petroleum at the primary energy use stage is referred to collectively
as oil, while the consumption of petroleum at the final end use stage
is referred to as petroleum products. The one exception to this is
liquefied petroleum gas (LPG). LPG is not included in the definition of
end use consumption of petroleum because it is modelled separately.
Primary fuels The forms of energy obtained directly from nature. They include
non-renewable fuels such as black coal, brown coal, uranium,
crude oil and condensate, naturally occurring liquid petroleum gas,
ethane and natural gas, and renewable fuels such as wood, bagasse,
hydroelectricity, wind and solar energy.
Secondary fuels Fuels produced from primary or other secondary (or derived) fuels
by conversion processes to provide the energy forms commonly
consumed. They include refined petroleum products, electricity, coke,
coke oven gas, blast furnace gas and briquettes.
Total final energy The total amount of energy consumed in the final or end use sectors. It
is equal to total primary energy consumption less energy consumed or
lost in conversion, transmission and distribution.
Total primary energy Also known as total domestic availability. The total of the consumption
of each fuel (in energy units) in both the conversion and end use
sectors. It includes the use of primary fuels in conversion activities,
notably the consumption of fuels used to produce petroleum products
and electricity. It also includes own use and losses in the conversion
sector.
Units
Metric units Standard metric prefixes
J joules k kilo 10
3
(thousand)
L litres M mega 10
6
(million)
t tonnes G giga 10
9
(1000 million)
g grams T tera 10
12
Wh watt-hours P peta 10
15
b billion (or 1000 million) E exa 10
18
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Australian energy projections to 2029-30 abare.gov.au 10.02
Standard conversions
1 barrel = 158.987 L
1 kWh = 3600 kJ
Indicative energy content conversion factors
Black coal production 28.5 GJ/t
Brown coal 9.7 GJ/t
Crude oil production 37 MJ/L
Naturally occurring LPG 26.5 MJ/L
LNG exports 54.4 GJ/t
Natural gas (gaseous production equivalent) 40 MJ/kL
Biomass 11.9 GJ/t
Hydroelectricity, wind and solar energy 3.6 TJ/GWh
Conventions used in tables
Small discrepancies in totals are generally the result of the rounding of components.
1
Summary

In this report, ABAREs latest long-term projections of Australian energy consumption,


production and trade are presented, with an outlook horizon of 2029-30. These projections
are not intended as predictions or forecasts, but as indications of potential changes in
Australian energy consumption, production and trade patterns given the assumptions used
in the report.

In undertaking these projections, ABARE included government policies that have already
been enacted and those that can reasonably be expected to be adopted over the
projection timeframe. On this basis, the Renewable Energy Target (RET) and a 5 per cent
carbon emissions reduction below 2000 levels by 2020 have been incorporated in the
projections, as well as other existing government initiatives.

The design of the carbon emissions reduction target modelled in this report is consistent
with the proposed Carbon Pollution Reduction Scheme (CPRS) as specified in the White
Paper on the Carbon Pollution Reduction Scheme (CPRS) released on 15 December 2008
and amended on 4 May 2009.

In November 2009, the Australian Government announced further measures related to


assistance for electricity generators, households and energy-intensive trade-exposed
industries under the proposed CPRS. These measures will clearly have distributional impacts
and provide assistance to affected parties. However, it is unlikely that these measures
will have a major effect on the behaviour of respective agents in the long run, given the
incentives inherent in the CPRS for long-term structural adjustment to reduce the carbon
intensity of the Australian economy.
Energy consumption

Total primary energy consumption is projected to grow by nearly 35 per cent (or 1.4 per cent
a year) over the projection period (2007-08 to 2029-30). This growth trajectory reinforces the
long-term decline in the energy intensity of the Australian economy.

Coal and oil will continue to supply the bulk of Australias energy needs, although their
share in the energy mix is expected to decline.

In comparison, the use of gas (natural gas and coal seam gas) is expected to grow
strongly by 3.4 per cent a year over the outlook period. This growth is driven primarily by
the electricity generation sector and consumption of gas in liquefied natural gas (LNG)
production.

Supported by the RET, the share of renewable energy is projected to increase substantially
to account for 8 per cent of total energy consumption in 2029-30. This implies an average
annual growth rate of 3.5 per cent, with strong growth expected for wind energy.
2
Australian energy projections to 2029-30 abare.gov.au 10.02

Higher projected growth rates in energy consumption in Queensland and Western Australia
compared with other states are underpinned by relatively higher gross state product
assumptions, combined with the high share of mining in economic output and the
significant projected expansion of the gas sector, in particular LNG.

The electricity generation sector and the transport sector are expected to remain the two
main users of primary energy.

While the mining sector contributed to only 5 per cent of primary energy consumption in
2007-08, it is projected to have the highest energy consumption growth rate over the next
two decades. This reflects the expected recovery in global demand for energy and mineral
commodities and the large number of mineral and energy projects (including LNG and coal
seam gas) assumed to come on stream over the outlook period.

Oil consumption in the transport sector is expected to grow steadily over the projection
period at an average rate of 1.2 per cent a year, driven largely by economic growth. Within
the transport sector, road transport is the largest contributor to energy consumption.
Energy use in the road transport sector is projected to grow by 0.9 per cent a year on
average over the period to 2029-30.
Electricity generation

Gross electricity generation is projected to grow by nearly 50 per cent (or 1.8 per cent a
year) from 247 terawatt hours in 2007-08 to 366 terawatt hours in 2029-30. This growth is
dominated by gas-fired electricity generation. The share of gas in electricity generation is
projected to increase from 19 per cent in 2007-08 to 37 per cent in 2029-30.

In parallel with the increasing share of gas in the electricity fuel mix, these projections
highlight the significant expansion in the use of non-hydro renewable energy resources.
Wind energy is projected to account for the majority of the increase in electricity generation
from renewable sources over the projection period, representing 12 per cent of electricity
generation in 2029-30. Growth is also expected in other renewables, including solar energy,
geothermal energy and bioenergy, but from a lower base.
Energy production and trade

Total production of non-uranium energy in Australia is projected to grow by 87 per cent


(or 2.9 per cent a year) over the projection period, driven by strong growth in gas and
renewable energy, to reach 23 637 petajoules in 2029-30.

While coal production is expected to continue to increase, with a projected growth of


1.8 per cent a year, its share in total energy production is expected to fall over the period to
2029-30.

Production of coal seam gas (CSG) in Queensland and New South Wales is projected
to continue its high growth trajectory and increase from 118 petajoules in 2007-08 to
2507 petajoules by 2029-30. It is expected that a significant proportion of this CSG will
Australian energy projections to 2029-30 abare.gov.au 10.02
3
be consumed domestically, supporting the projected growth in gas-fired electricity
generation. From 2015 it is expected that coal seam gas will also be converted to LNG. There
are currently several proposed CSG-LNG projects with a potential combined capacity of up
to 43 million tonnes (2312 petajoules) a year by 2020.

While the production of conventional gas (natural gas) is expected to decline in eastern
Australia, strong production growth is projected in the western and northern gas markets
as a number of major greenfield projects are developed.

As the projected growth in energy production exceeds that of primary energy


consumption, Australias exportable surplus of energy is projected to grow over the
projection period. In 2007-08, the ratio of Australias primary energy consumption to energy
production (excluding uranium) is estimated to have been 45 per cent. By 2029-30, this ratio
is projected to fall to 33 per cent.

Black coal, which includes both thermal and metallurgical coal, is projected to remain
Australias dominant energy export. The projected average annual growth rate of 2.4 per
cent is based on expectations that global demand for coal will continue to increase in the
period to 2029-30 as a result of increased demand for electricity and steel-making raw
materials, particularly in emerging market economies in Asia.

LNG exports are also projected to increase significantly. By 2029-30, LNG exports from the
western market have the potential to reach 73 million tonnes (3986 petajoules), which
reflects an average annual growth rate over the projection period of 9 per cent. The
development of a number of greenfield projects, including the Gorgon LNG, Ichthys,
Wheatstone and Browse projects, is assumed to occur over the projection period.

With declining oil production and limited prospects for an expansion of refinery capacity,
Australias net trade position for crude oil and refined petroleum products is expected to
weaken over the outlook period. Australias net imports of liquid fuels are projected to
increase by 3.3 per cent a year on average.

1
4
This report represents ABAREs ongoing commitment to publish regular long range projections
of Australian energy production and use, with the support of the Australian Government
Department of Resources, Energy and Tourism. Since the previous long-term projections were
published in December 2007, significant policy developments have taken place that have the
potential to cause fundamental shifts in Australias energy sector. In particular, concerns over
climate change, and highly volatile energy prices have given rise to new energy policy settings,
both domestically and internationally.
In the Australian context, these new policy settings revolve around the legislation of the
expanded Renewable Energy Target (RET) and the proposed introduction of a carbon
emissions reduction target, both of which are likely to have a significant influence on Australian
energy consumption, production and trade patterns.
Another major event since December 2007 has been the global financial crisis and the
subsequent global economic downturn. While this report is focused primarily on long-
term trends, the weakened economic outlook has had an effect on short to medium-term
economic growth trajectories, which has affected both energy demand and investment
incentives.
The report aims to encapsulate these recent developments by providing an assessment of
long-term projections of Australian energy consumption, production and trade for the period
from 2007-08 to 2029-30. These projections are derived using ABAREs E
4
cast model, which is a
dynamic partial equilibrium model of the Australian energy sector.
In undertaking these projections, ABARE has included only the policies that have already
been enacted and those that can reasonably be expected to be adopted over the projection
timeframe. As such, these projections incorporate the RET and a 5 per cent carbon emissions
reduction target. This scenario does not pre-empt any Australian Government decisions that
may affect the final target and policy design, or any specific outcomes that may be achieved
by a global commitment to reduce emissions.
Further, it should be recognised that the evolving dynamics of energy markets over the
past few years have increased the complexity of long-term energy projections. There is
significant uncertainty about technology, investment and government policies in the
current environment. As such, these projections should not be considered as forecasts of
the Australian energy future, but more as indications of what the future could be given the
assumptions used. In setting these assumptions, ABARE consulted widely with stakeholders at
both national and state levels.
Introduction
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5
The report is structured as follows. In chapter 2 the changing energy policy context in Australia
is described, with a focus on key policies that are likely to affect long-term energy trends.
Chapter 3 presents the modelling framework used, as well as the key underlying assumptions.
Chapter 4 provides the outlook for Australian energy consumption and electricity generation
covering the period 2007-08 to 2029-30 and chapter 5 provides the long-term outlook for
Australian energy production and trade.
6
2
Energy resources and markets
Australia is endowed with abundant, high quality and diverse energy resources (map 1).
The development of these resources has contributed to low cost energy, underpinned the
competitiveness of energy-intensive industries and provided significant export income.
Australia is one of the few OECD countries that is a significant net exporter of energy including
uranium, coal, liquefied petroleum gas (LPG) and liquefied natural gas (LNG). Energy exports
were valued at around $78 billion in 2008-09, which represented around 27 per cent of
Australias total exports of goods and services, and 40 per cent of Australias total commodity
exports.
The Australian energy context
Distribution of Australias energy resources
15.3%
15.7%
0.1%
0.3%
2.1%
0.6%
0.2% (Bowen/Surat
Basin)
0.3%
17.7% 8.9%
52.2%
66.8%
0.3%
0.0%
Share of gas resources
Share of oil resources
0.3%
1.1%
0.7%
0.2%
11.1% 6.1%
m
a
p
1
Gas basin Gas basin
Black coal basin
Brown coal basin
Source: Geoscience Australia.
Australian energy projections to 2029-30 abare.gov.au 10.02
7
Australia is the worlds ninth largest energy producer, accounting for around 2.4 per cent of the
worlds energy production (IEA 2009a). Australia produces energy for meeting domestic energy
consumption needs and for export. More than three-quarters of Australias energy production
is currently exported.
The rate of growth in Australias energy production has been increasing over the past decade,
driven largely by growing global demand for energy. Over the 10 years to 2007-08, energy
production increased at an average annual rate of 3.5 per cent.
The main fuels produced in Australia are coal,
uranium and natural gas (gure a). In 2007-08,
Australias energy production was dominated
by coal, which accounted for 54 per cent of total
energy production in energy content terms,
followed by uranium (27 per cent) and natural
gas (11 per cent). Crude oil and LPG represented
6 per cent of total production, and renewables
represented 2 per cent.
Australian production of renewable energy has
been dominated by bagasse, wood and wood
waste, and hydroelectricity, which together
accounted for 86 per cent of renewable
energy production in 2007-08. Wind energy,
solar energy and biofuels accounted for the
remainder of Australias renewable energy
production.
Australia is the worlds twentieth largest primary energy consumer, and ranks fifteenth on a per
person energy use basis (IEA 2009a).
Although Australias energy consumption is growing, the rate of growth has been decreasing
over the past 50 years. Following annual growth of around 5 per cent during the 1960s, growth
in energy consumption fell during the 1970s to an average of around 4 per cent a year, largely
as a result of the two major oil price shocks. During the 1980s, economic recession and sharply
rising energy prices resulted in annual growth falling to an average of 2.3 per cent. Despite
robust economic growth, annual average growth in energy consumption fell to around 1.9 per
cent over the 10 years to 2007-08.
This trend indicates a longer term decline in energy intensity of the Australian economy, which
can be attributed to two main factors (gure b). First, greater efficiency has been achieved
through technological improvement and fuel switching. Second, rapid growth has occurred in
less energy-intensive sectors, such as the commercial and services sector, relative to the more
moderate growth of the energy-intensive manufacturing and processing sectors.
Australian primary energy consumption consists mainly of coal and petroleum. Black and brown
coal account for the greater share of the fuel mix, at around 37 per cent, followed by petroleum
products (36 per cent), natural gas (22 per cent) and renewable energy sources (5 per cent).
Australian energy production
a
PJ
5000
10 000
15 000
20 000
2007
-08
2002
-03
1997
-98
1992
-93
1987
-88
1982
-83
1977
-78
uranium
gas
oil
renewables
brown coal
black coal
8
Australian energy projections to 2029-30 abare.gov.au 10.02
The main users of energy in Australia are
the electricity generation, transport and
manufacturing sectors. Together, these sectors
accounted for more than three-quarters of
energy consumption in 2007-08. The residential
and mining sectors were the next biggest
consumers.
Over the past 20 years, domestic energy
consumption has increased at a slower rate than
production. Rapid growth in global demand for
Australian energy resources has driven growth
in domestic production. Consequently, the share
of exports in Australian energy production has
continued to increase.
Since 1987-88, the value of Australias energy
exports (in 2007-08 Australian dollars) has
increased by an average of 7 per cent a year
(gure c). Energy export earnings increased by
71 per cent in 2008-09 to reach close to $78
billion (ABARE 2009a). Coal is Australias largest
energy export earner, with a value close to $55
billion in 2008-09, followed by LNG ($10 billion)
and crude oil ($9 billion).
While Australia is a net energy exporter, it is
also a net importer of crude oil and refined
petroleum products. In 2008-09, Australias
imports of crude oil and refined products were
$28 billion.
Any future expansion of Australias energy
market, including access to new energy
resources, will require investment in energy
infrastructure. Additional investment will be
required to replace aging energy assets and also
to allow for the integration of renewable energy
into existing energy supply chains.
The Asia Pacific Energy Research Centre released projections of energy investment
requirements to 2030 in November 2009 (APERC 2009). APERC estimates that between US$414
billion and US$546 billion (in 2006 dollars) will be required over the period 2006 to 2030 for the
energy sector as a whole. More than half of this is expected to be in resource extraction and
around one-quarter in transportation including rail, pipelines and electricity transmission lines.
Within the electricity sector, more than half of the required investment is in generation and a
further 41 per cent in transmission.
Australian intensity of energy
consumption
b
index
40
80
120
160
200
2007
-08
2002
-03
1997
-98
1992
-93
GDP index
energy consumption index
intensity index
Australian energy exports
c
2008-09
$b
10
20
30
40
50
60
70
80
2008
-09
2003
-04
1998
-99
1993
-94
1988
-89
1983
-84
uranium
LPG
LNG
petroleum products
crude oil and ORF
coal
Australian energy projections to 2029-30 abare.gov.au 10.02
9
Energy policy
Meeting growing demand for energy while providing a stable environment for energy sector
investment poses some important challenges for the energy sector.
More broadly, the Australian Government has developed a suite of policies and programs
aimed at creating a lower carbon economy. These policies and programs are designed to
internalise the costs of climate change for Australian business and households through a
fundamental shift in energy use and investment incentives.
The key elements of the governments strategy to reduce emissions are the Renewable Energy
Target (RET) and the proposed carbon emissions reduction target.
Renewable Energy Target
A key policy driver that is likely to have a significant influence on the structure of the energy
sector is the expanded Renewable Energy Target (RET). In 2008, the Australian Government
announced a target of 20 per cent of Australias electricity supply to be sourced from
renewable energy by 2020. This is to be achieved through an expansion of the previous
Mandatory Renewable Energy Target (MRET) scheme, increasing the legislated national target
from 9500 gigawatt hours to 45 850 gigawatt hours in 2020, in addition to what would have
been generated in a baseline without the policy. After 2020, the target will be maintained at
45 000 gigawatt hours until 2030, when it is expected that there will be a carbon price high
enough to support renewable energy generation. This policy was legislated in mid-2009 with
new targets to take effect in 2010.
The aim of the scheme is to accelerate the uptake of renewable energy for on-grid power
generation and to contribute to the development of internationally competitive renewable
energy industries. It is also designed to bring existing state-based renewable energy targets
into a single, national scheme.
The Office of the Renewable Energy Regulator will oversee the implementation of the RET
(ORER 2009).
Carbon emissions reduction target
The Australian Government released the White Paper on the proposed Carbon Pollution
Reduction Scheme (CPRS) on 15 December 2008 (Australian Government 2008). This document
sets out the governments policy for two components of its carbon mitigation strategythe
establishment of a medium-term target range for emissions reduction and the final design of
the emissions reduction target. The White Paper allowed for two different scenarios:

a 5 per cent emissions reduction target, which requires a 5 per cent reduction in emissions
below 2000 levels by 2020

a 15 per cent emissions reduction target, which requires a 15 per cent reduction in
emissions below 2000 levels by 2020.
10
Australian energy projections to 2029-30 abare.gov.au 10.02
Both scenarios are based on the assumption that international emissions trading gradually
expands, developed economies participate from 2010, developing countries join over time,
and there is global participation by 2025. Under the 5 per cent emissions reduction target, a
slower start to global greenhouse gas emission reductions and stabilisation of emissions in the
atmosphere at 550 parts per million (ppm) are assumed. The 15 per cent emissions reduction
target assumes a faster start and stabilisation at 510 ppm.
New measures for the emissions reduction target, including an expanded target, were
announced on 4 May 2009 (Australian Government 2009a). In particular, Australia committed
to a larger reduction in emissions of 25 per cent below 2000 levels by 2020, subject to a more
ambitious international agreement involving all major emitters and consistent with stabilisation
of emissions at 450 ppm or lower by mid-century.
Under all these scenarios, Australias long-term target is to reduce emissions to 60 per cent
below 2000 levels by 2050.
The CPRS aims to reduce emissions of greenhouse gases by placing a limit on aggregate
annual emissions from all the covered types and sources of emissions and allowing carbon
pollution permits to be traded, with the price of permits to be determined by the market.
The CPRS is proposed to be phased in on 1 July 2011 but is yet to be legislated.
In November 2009, the Australian Government announced further measures related to
assistance for electricity generators, households and energy-intensive trade-exposed industries
under the proposed CPRS. These measures will clearly have distributional impacts and provide
assistance to affected parties to ease adjustment costs. However, it is unlikely that these
measures will have a major effect on the behaviour of respective agents in the long run, given
the incentives inherent in the CPRS for long-term structural adjustment to reduce the carbon
intensity of the Australian economy. For this reason, these measures have not been explicitly
considered in the modelling undertaken for this report.
Other initiatives
In addition to these key national policies, there is a wide range of other policy initiatives
at state levels designed to deliver a lower carbon footprint. These include the Australian
Government Clean Energy Initiative, energy efficiency initiatives, the New South Wales
Greenhouse Gas Reduction Scheme, the Queensland Gas Scheme and the Victorian
Renewable Energy Target.
Clean Energy Initiative
The Clean Energy Initiative announced by the Australian Government in May 2009 is
designed to support the research, development and demonstration of low-emission energy
technologies, including industrial scale carbon capture and storage (CCS) and solar energy
(Department of Resources, Energy and Tourism 2009).
Australian energy projections to 2029-30 abare.gov.au 10.02
11
Under the CCS flagships program, support will be given for the construction and
demonstration of large-scale integrated carbon capture and storage projects in Australia with
a target to create 1000 megawatts of low emission fossil fuel electricity generation capacity.
Also part of the Clean Energy Initiative is the Solar Flagships Program which received funding
to support the construction and demonstration of large-scale solar power stations in Australia
with a target of 1000 megawatts of electricity generation capacity.
Under both programs, the commissioning of projects is expected to commence from 2015,
following a competitive selection process, and subject to necessary financial, planning,
engineering and regulatory processes and approvals.
Energy efficiency initiatives
Since 2004, the Australian and state and territory governments have coordinated national
action on energy efficiency through the National Framework for Energy Efficiency (NFEE)
which aims to increase the uptake of energy efficient technologies and processes across the
Australian economy. In July 2009, the Council of Australian Governments (COAG) agreed on
the National Strategy on Energy Efficiency (NSEE). The strategy aims to accelerate energy
efficiency improvements for households and businesses across all sectors of the economy, to
address climate change, reduce the cost of emissions abatement and improve the productivity
of the economy. The NSEE addresses barriers preventing the optimal uptake of energy-
efficient opportunities, such as split incentives and information failures. There are a number
of programs already in place or in development by the Australian Government and state and
territory governments to address energy efficiency (Sandu and Petchey 2009).
New South Wales Greenhouse Gas Reduction Scheme
The New South Wales Greenhouse Gas Reduction Scheme (GGAS) was implemented on
1 January 2003, and imposes enforceable annual greenhouse gas reduction benchmarks
for electricity retailers and other liable parties. The Australian Capital Territory Government
implemented a scheme that mirrors GGAS on 1 January 2005.
The annual greenhouse gas reduction benchmarks are set until 2012 and the NSW
Government has committed to extending benchmarks until 2020. The initial benchmark was
set at 8.65 tonnes of carbon dioxide equivalent (CO
2
-e) per person for the year. Currently, the
benchmark is set as a 5 per cent reduction in per person greenhouse gas emissions from the
Kyoto Protocol baseline year of 1989-90 by 2007. This target will be maintained until at least
2012, which implies a target of 7.27 tonnes of CO
2
-e per person in 2009 (Greenhouse Gas
Reduction Scheme Administrator 2007). The introduction of the proposed CPRS will result in
the termination of GGAS.
In November 2008, the NSW Government announced new energy efficiency targets to take
effect from 1 July 2009. This will extend the scope of the demand side abatement element of
GGAS beyond the introduction of the CPRS. The new targets will require electricity retailers
to undertake energy efficiency activities or projects in business or residential buildings
(Greenhouse Gas Reduction Scheme Administrator 2008).
12
Australian energy projections to 2029-30 abare.gov.au 10.02
Queensland Gas Scheme
The Queensland Gas Scheme was implemented on 1 January 2005 with the aim of reducing
greenhouse gas emissions and supporting Queenslands gas industry. The scheme currently
requires electricity retailers and other liable parties to source at least 13 per cent of their
electricity from natural gas-fired generation.
Amendments made to the Clean Energy Act 2008 on 1 July 2008 increased the requirement to
15 per cent in 2010 and up to 18 per cent by 2020 (Queensland Government 2009). The scheme
will be transitioned into the CPRS proposed by the Australian Government.
Victorian Renewable Energy Target
The Victorian Renewable Energy Target (VRET) commenced on 1 January 2007 and requires
10 per cent of total electricity generation be sourced from renewable energy sources by 2016.
Legislation has been passed in the Victorian parliament to transition the VRET to the Australian
Governments expanded RET scheme from 2010.
13
3
The energy sector projections presented in this report were derived using ABAREs E
4
cast
model. E
4
cast is a dynamic partial equilibrium model of the Australian energy sector. It is used
to project energy consumption by fuel type, by industry and by state or territory, on a financial
year basis.
The model includes a large number of variables and parameters that are used to approximate
the interdependencies between production, conversion and consumption. As these are of
critical importance to the results obtained, an outline of the key assumptions and model
parameters are provided in this chapter.
The E
4
cast model
The modelling framework developed by ABARE employs an integrated analysis of the
electricity generation and gas sectors within an Australian domestic energy use model. The
model represents two sets of conditions: quantity and competitive price constraints. The
competitive equilibrium is achieved when all the constraints are satisfied. A simple schematic
of the E
4
cast model is provided in gure d.
E
4
cast incorporates ABAREs most
recent commodity projections and
current assumptions on the costs and
characteristics of energy conversion
technologies. A brief overview of the key
features of the current version of E
4
cast
is provided in box 1. The model provides
an outlook for the Australian energy
sector that is feasible, where all quantity
constraints are satisfied, and satisfies the
economic competitive prices conditions (a
competitive equilibrium is achieved).
The coverage of energy types and
industries is shown in tables 1 and 2,
respectively. The model includes 19 energy
sources, five conversion sectors, 19 end use
sectors and seven regions (tables 1 and 2).
The demand functions for each of the main
types of fuel, such as electricity, natural
gas, coal and petroleum products, have
Methodology and key
assumptions
1
Fuel coverage in E
4
cast
Black coal
Brown coal
Coal by-products
coke oven gas
blast furnace gas
Coke
Natural gas
Coal seam gas
Oil (crude oil and condensate)
Liquefied petroleum gas (LPG)
Other petroleum products
Electricity
Solar (solar hot water)
Solar electricity (solar photovoltaic and solar thermal)
Biomass (bagasse, wood and wood waste)
Biogas (sewage and landfill gas)
Hydroelectricity
Wind energy
Geothermal energy
Ocean energy
14
Australian energy projections to 2029-30 abare.gov.au 10.02
been estimated econometrically and incorporate own price, cross price, income or activity, and
technical change effects.
In E
4
cast, prices of energy sources used in electricity generation are determined within the
model based on demand and supply factors, with the exception of oil where prices are
determined in the world market.
The direction of interstate trade in natural gas and electricity is determined endogenously in
E
4
cast, accounting for variation in regional prices, transmission costs and capacities.
In E
4
cast, over the medium term, upper limits on interstate flows of electricity and natural gas
are imposed to reflect existing constraints and known expansions that are at an advanced
stage of development. Beyond the medium term, it is assumed that any interstate imbalances
in gas supply and demand will be anticipated, which will result in infrastructure investment in
gas pipelines and electricity interconnector capacity sufficient to meet trade requirements.
Energy forecasting model
d
Endogenous supply Exogenous supply
Fuel prices
Investment capacity
Electricity module
Demand and supply
balance and prices
Energy module
Equilibrium supply
and demand
Investment in
new capacity
Macroeconomic
assumptions
Historical data
Contraints
Technological
advances
Government policies
ELECTRICITY
DEMAND CURVES
DEMAND CURVES
Australian energy projections to 2029-30 abare.gov.au 10.02
15
For internationally traded energy commodities, crude oil, LNG and black coal of export quality,
production is exogenous to the model and is drawn from ABAREs commodity forecasting
capability.
box 1 Key features of E
4
cast
In 2000, ABARE commenced development of its E
4
cast energy forecasting and analysis framework.
The first version of the model was documented in Dickson et al. (2001). Since then, the model
has been enhanced and refined in a number of directions and provides a sound platform for
the development and analysis of medium and long-term energy and greenhouse gas emissions
projections. Key features of the 2009 version of E
4
cast are outlined below:
E
4
cast is a dynamic partial equilibrium framework that provides a detailed treatment of the
Australian energy sector focusing on domestic energy use and supply.
The Australian energy system is divided into 24 conversion and end use sectors.
Fuel coverage comprises 19 primary and secondary fuels.
All states and territories (the Australian Capital Territory is included with New South Wales) are
represented.
Detailed representation of energy demand is provided. The demand for each fuel is modelled as
a function of income or activity, fuel prices (own and cross) and efficiency improvements.
Primary energy consumption is distinguished from final (or end use) energy consumption. This
convention is consistent with the approach used by the International Energy Agency.
The current version of E
4
cast covers the period from 2007-08 to 2029-30.
Demand parameters are established econometrically using historical Australian energy data.
Business activity is generally represented by gross state product.
Energy-intensive industries are modelled explicitly, taking into account large and lumpy capacity
expansions. The industries modelled in this way are:
aluminium
other basic non-ferrous metals (mainly alumina)
iron and steel.
The electricity generation module includes 17 generation technologies. Investment plans in
the power generation sector are forward-looking, taking into account current and likely future
conditions affecting prices and costs of production.
Key policy measures modelled explicitly are:
the Australian Governments proposed carbon emissions reduction target
the Australian Government Renewable Energy Target
the Australian Government Clean Energy Initiative
the New South Wales Greenhouse Gas Reduction Scheme
the Queensland Gas Scheme
the Victorian Renewable Energy Target.
All fuel quantities are in petajoules.
Supply of natural gas is modelled at the state level.
All prices in the model are real, in constant dollars of the base year, and are expressed in dollars
per gigajoule. The base year is 2007-08.
16
Australian energy projections to 2029-30 abare.gov.au 10.02
Although Australia is a significant producer of uranium oxide, it is not included in the
projections as it is not consumed as a fuel in Australia and, therefore, does not affect the
domestic energy balance. A detailed assessment of Australias uranium resources and outlook is
provided in the Australian Energy Resource Assessment (Geoscience Australia and ABARE 2010).
E
4
cast base year data
The base year (2007-08) data in the model are drawn from ABAREs Australian energy statistics
(ABARE 2009b). These statistics are largely derived from ABAREs fuel and electricity survey. The
2007-08 data, as reported in the report, are the results of model calibration and classification
2
Industry coverage in E
4
cast
Sectors/sub-sectors ANZSIC code
Conversion
Coke oven operations 2714
Blast furnace operations 2715
Petroleum refining 2510, 2512-2515
Petrochemicals na
Electricity generation 361

End use
Agriculture Division A
Mining Division B
Manufacturing and construction Division C
Wood, paper and printing 23-24
Basic chemicals 2520-2599
Non-metallic mineral products 26
Iron and steel (excludes coke ovens and blast furnaces) 2700-2713, 2716-2719
Basic non-ferrous metals 272-273
aluminium smelting 2722
other basic non-ferrous metals 2720-2721, 2723-2729
Other manufacturing and construction na
Transport Division I (excludes sectors 66 and 67)
Road transport 61
passenger motor vehicles na
other road transport na
Railway transport 62
Water transport 63
domestic water transport 6301
international water transport 6302
Air transport 64
domestic air transport na
international air transport na
Pipeline transport 6501
Commercial and services Sectors 37, 66 and 67; Divisions F, G, H, J, K, L, M, N, O, P and Q
Residential na
Australian energy projections to 2029-30 abare.gov.au 10.02
17
and may not be identical to actual 2007-08 data. A brief description of the survey and ABAREs
energy balance data is provided in box 2.
box 2 ABAREs Australian energy statistics
ABAREs Australian energy statistics are based on its fuel and electricity survey (FES), which is a
nationwide survey of around 1400 large energy users and producers. The energy users surveyed
account for around 60 per cent of total Australian energy consumption. Each year, in around
October/November, respondents are sent paper-based surveys, requesting information on the
quantity of fuels they produced and consumed as well as the electricity they generated. These
detailed energy statistics are integrated and reconciled with other databases and information
sources. Supplementary data are collected from various sources, including:

Australian Bureau of Statistics international trade data

ABAREs farm surveys database for the broadacre and dairy farm sectors

Department of Resources, Energy and Tourisms Australian Petroleum Statistics

Energy Supply Association of Australia

Geoscience Australia

state government departments

Australian Customs Service.


The detailed FES data on energy consumption form the main building block on which energy
consumption by region, industry and fuel type is estimated. The consumption data are reconciled
with readily available production statistics to provide a national energy balance.
ABAREs energy statistics are used by governments to assist in policy formation, and by industry
participants, researchers and industry consultants. The survey is also a key element in meeting
Australias commitments to provide energy supply and demand information to international
organisations such as the International Energy Agency, the World Energy Council and the Asia
Pacific Economic Cooperation forum, and in developing Australias National Greenhouse Gas
Inventory.
From 2010, the FES will be replaced by the National Greenhouse and Energy Reporting System
(NGERS) as the key mechanism by which Australian energy data are collected, and as a key input to
ABAREs Australian energy statistics. NGERS implements a legal framework for companies meeting
established thresholds to report their energy consumption and production and greenhouse gas
emissions (Australian Government 2009b). NGERS reporting thresholds will be introduced in three
steps, starting at 500 terajoules in 2008-09 to reach 200 terajoules by 2010-11. The FES will be
run concurrently with NGERS in 2009 (to collect 2008-09 data), and subsequently the FES will be
replaced by NGERS.
18
Australian energy projections to 2029-30 abare.gov.au 10.02
Key assumptions
There are a number of economic drivers that will shape the Australian energy sector over the
next two decades. These include:

population growth

economic growth

energy prices

electricity generation technologies

end use energy technologies

government policies.
The assumptions relating to these key drivers are presented below.
Population growth
Population growth affects the size and
pattern of energy demand. Projections
for Australian population are drawn from
the Australia Bureau of Statistics (ABS) and
presented in table 3.
Economic growth
The energy projections are highly sensitive
to underlying assumptions about GDP
growththe main driver of energy demand. Energy demand for each sector within E
4
cast is
primarily determined by the value of the activity variable used in each sectors fuel demand
equation. The activity variable used for all non energy-intensive sectors is gross state
product (GSP), which represents income or business activity at the state level. However, for
energy-intensive industries (aluminium, other basic non-ferrous metals, and iron and steel
manufacturing), projected industry output is considered as a more relevant indicator of activity
than GSP because of the lumpy nature of investment.
The GDP and GSP assumptions (table 4) were based on the modelling undertaken by the
Australian Treasury for the 5 per cent emissions reduction target (Australian Government 2008).
These were adjusted in the light of the revised GDP assumptions as presented in Mid-Year
Economic and Fiscal Outlook 2009-10 in November 2009 (Australian Government 2009c).
In 2008-09, Australias real GDP increased by 1.2 per cent, following growth of 3.7 per cent in
2007-08. Economic growth in Australia is expected to pick up in 2009-10 to average 1.5 per
cent. As financial markets stabilise and global consumer and business confidence is restored,
economic growth in Australia is expected to return to its longer term potential by 2010-11. GDP
growth is expected to slow gradually in the latter part of the projection period to reflect a
slowing in Australias population and labour supply growth.
3
Australian population assumptions
year population
million
2008 21.6
2020 25.3
2030 28.5
Source: ABS 2008, 2009.
Australian energy projections to 2029-30 abare.gov.au 10.02
19
Queensland and Western Australia are expected
to have the highest gross state product growth
rates over the period to 2029-30, reflecting to
a large extent their substantial minerals and
energy resource base, relatively high degree
of export orientation and relatively higher
population growth rates.
Real energy prices
Energy prices affect the demand for, and
supply of, energy. Assumptions for selected real
international energy prices over the outlook
period are presented in index form in gure e.
After significant declines in energy commodity prices in 2008-09 as a result of the global
economic downturn, world prices for these commodities have started to recover in line with
the improved outlook for a recovery in world economic growth. Over the medium term to
2015, it is expected that a strengthening in global demand, underpinned by the assumed
economic recovery, will once again place upward pressure on energy prices, with significant
volatility expected to remain.
In the longer term, energy price profiles will hinge on a number of factors including the
amount of investment in additional production capacity, costs of production and technology.
Over the past few years, international thermal coal prices have generally followed a similar
trajectory to oil and gas prices, as a reflection of inter-fuel substitution possibilities. In the
medium term, thermal coal contract prices are assumed to remain above 2007-08 levels,
supported by strong demand growth expected
in countries such as China and India, combined
with continuing infrastructure congestion in
key exporting countries (ABARE 2010). Beyond
the medium term, global thermal coal prices
are expected to increase slowly in real terms,
which reflects the higher costs associated with
developing new mines being largely offset by
the adoption of more advanced technology.
In the medium term, oil prices are assumed
to recover, following their substantial decline
in the second half of 2008, as a result of the
economic recovery and higher oil demand
(ABARE 2010). However, the long-term prospect
for oil prices is much less certain. Key factors
that are expected to drive long-term oil
prices are the cost of developing remaining
4
Australian economic growth, by
region
average annual growth,
2007-08 to 2029-30
%
New South Wales 2.7
Victoria 2.8
Queensland 3.2
South Australia 2.3
Western Australia 3.2
Tasmania 2.2
Northern Territory 3.0
Australia 2.9
Index of world real energy prices
2007-08 dollars
e
index
50
100
150
200
250
2029
-30
2024
-25
2019
-20
2014
-15
2009
-10
coal
LNG
oil
20
Australian energy projections to 2029-30 abare.gov.au 10.02
oil reserves, the level and timing of investment in production and refining capacity, and
technological development in relation to alternative liquid fuels. The estimated capital and
production costs for conventional oil sources have increased in recent years because of rising
materials, equipment and labour costs (IEA 2009b). As a result, new oil projects are estimated
to be uneconomic at a world price of less than US$70 a barrel.
While a rise in the marginal cost of oil production is expected over time, technological
developments associated with non-conventional liquids, such as coal-to-liquids and second
generation biofuels, have the potential to play a major role in anchoring oil prices below what
would have been the case without these backstop technologies. The assumed development
and entry of these technologies underpins the long-term price assumptions used in this report
(gure e). However, there are uncertainties surrounding this price profile, particularly relating to
the costs of alternative technologies and how these may evolve over time as a consequence
of technological developments. Further, the costs of some of these technologies could also be
affected by carbon emission pricing.
In relation to natural gas, LNG prices are assumed to follow a similar trajectory to oil prices in
the long term, reflecting an assumed continuation of the established relationship between
oil prices and long-term gas supply contracts through indexation in the Asia Pacific market,
and substitution possibilities in electricity generation and end use sectors. In its 2009 World
Energy Outlook, the International Energy Agency (IEA 2009b) flags a potential relaxation of this
relationship as significant new gas suppliesincluding unconventional gas and LNGcome
on line, thereby placing some downward pressure on gas prices. However, indexation is likely
to remain the dominant pricing mechanism in the Asia Pacific region, where most of Australias
LNG trade will continue to occur (IEA 2009b).
Domestic coal and gas prices are determined in E
4
cast through the interaction of changing
demand and supply factors.
Electricity generation technologies
Australia has access to a range of different electricity generation technologies. This is likely to
increase over time as new technologies are developed and the cost of some technologies falls.
While a range of factors will affect which technology is used, the relative cost is important.
The Electric Power Research Institute (EPRI 2010) has recently assessed the status of different
electricity technologies in 2015 and 2030.
This EPRI technology status data enable the comparison of technologies at different levels of
maturity. However, market and system factors will have a significant impact on the technology
mix in an energy system. For this reason energy market prices cannot be extrapolated from
technology cost analysis. Market modelling is required to project potential electricity prices
arising from market and investment outcomes. The levelised cost of technologies represents
the revenue per unit of electricity generated that must be met to break even over the lifetime
of a plant. These costs are in 2009 Australian dollars. The combined effect of uncertainty
ranges in plant capital cost, fuel cost, project and site specific costs, and CO
2
transportations
Australian energy projections to 2029-30 abare.gov.au 10.02
21
and storage costs are shown in gures f and g. These figures show how the relative technology
costs change between 2015 and 2030 as learning and experience in technologies improves.
While these technology cost estimates were developed on the basis of generic plant
configurations rather than on detailed plant designs or equipment and material costs, and are
subject to uncertainty in relation to a number of factors, they provide valuable and comprehensive
information on the relative costs of different electricity generation technologies in an Australian
setting, and how these costs might change over time. Importantly though, these costs do not
include the cost of any carbon price.
The relative costs of different technologies are more important than the absolute magnitude
of these costs in determining their relative prospects in the electricity generation sector (merit
order). The EPRI results show that, in the medium term, coal and gas without CCS will remain
among the lowest technology cost options. Of the renewable energy technologies, wind is
Technology ranking a, 2015
2009 prices
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a EPRI levelised costs of technology estimates are based on simplified pro-forma costs; individual projects may lie outside this.
Levelised costs of technologies include weighted cost of capital (8.4 per cent real before tax) and a notional allowance of 7.5 per
cent for site-specific costs, and exclude financial support mechanisms, grid connection, transmission and firming (standing reserve
requirements). Baseload technologies are assumed to have a capacity factor of 85 per cent.
Note: SCPC coal (black and brown coal); PC-Oxy pulverised coal with oxy-combustion; IGCC integrated gasification combined
cycle; CCS carbon capture and storage; OCGT open cycle gas turbine; CCGT combined cycle gas turbine; EGS enhanced
geothermal systems; HSA hot sedimentary aquifer; central receiver solar thermal including central receiver and parabolic trough,
all with and without storage; PV solar photovoltaic including two axis, single axis and fixed.
Source: EPRI technology status data (2010).
22
Australian energy projections to 2029-30 abare.gov.au 10.02
one of the lowest cost options. Despite a significant decline in the costs of solar technologies
expected in the future, the costs of these technologies are expected to remain relatively high
over the coming years. The costs of geothermal electricity are shown to be competitive with
those of other baseload technologies, although this technology is still at a demonstration
stage.
For technologies that are not covered in detail by the EPRI data (ocean energy, bioenergy and
the retrofitting of existing fossil-fuel plants with CCS technology), ABARE has drawn on a range
of other sources (IEA 2008; Specker, Phillips and Dillon 2009; and National Energy Technology
Laboratory 2009). There is considerable uncertainty regarding the absolute costs of these
technologies. Further, not all units of existing power plants are amenable to be retrofitted with
CCS technology. Key considerations include the units age and size, available space and access
to geological storage.
The relative costs of all technologies represented in E
4
cast are presented in gure h in an index
form for the base year and 2029-2030. The relative costs of different technologies are more
important than the absolute magnitude of these costs in determining their relative prospects
in the electricity generation sector.
Technology ranking a, 2030
2009 prices
g
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h
)

a EPRI levelised costs of technology estimates are based on simplified pro-forma costs; individual projects may lie outside this.
Levelised costs of technologies include weighted cost of capital (8.4 per cent real before tax) and a notional allowance of 7.5 per
cent for site-specific costs, and exclude financial support mechanisms, grid connection, transmission and firming (standing reserve
requirements). Baseload technologies are assumed to have a capacity factor of 85 per cent.
Source: EPRI technology status data (2010).
Australian energy projections to 2029-30 abare.gov.au 10.02
23
End use energy technologies
End use energy technologies affect the efficiency of energy use. These technologies are
assumed to become more energy efficient over time through technological improvements.
Further, the National Strategy on Energy Efficiency can also be expected to address
non-market barriers to the uptake of energy efficiency opportunities.
The rate of end use energy efficiency improvement is assumed to be 0.5 per cent a year over
the projection period for most fuels in non energy-intensive end use sectors. For energy-
intensive industries, the low capital stock turnover relative to other sectors is assumed to result
in a lower rate of energy efficiency improvement of 0.2 per cent a year.
Government policies
In this set of projections, the following key policies have been modelled explicitly in E
4
cast:

the Australian Government Renewable Energy Target (RET)

the Australian Governments proposed emissions reduction target

the Australian Government Clean Energy Initiative

the New South Wales Greenhouse Gas Reduction Scheme

the Queensland Gas Scheme

the Victorian Renewable Energy Target.


Index of real levelised cost of electricity generation technologies excluding
carbon emission costs
h
CCS
retrot
wind bio-
energy
geo-
thermal
HSA
gas
CCS
brown
coal
CCS
black
coal
CCS
geo-
thermal
EGS
solar
thermal
solar
PV
ocean gas hydro black
coal
brown
coal
index
1
2
3
4
5
6
2007-08
2029-30
24
Australian energy projections to 2029-30 abare.gov.au 10.02
The Renewable Energy Target (RET)
The RET requires extending the limit on the renewable electricity generation under the
MRET scheme by more than four times, to 45 850 gigawatt hours by 2020. The target is then
maintained at 45 000 gigawatt hours until 2030 when the scheme is scheduled to be phased
out. Interim targets have been set by the Australian Government to ensure consistent progress
toward the final target (table 5).
In E
4
cast, this policy intervention is modelled
as a constraint on electricity generation; that
is, renewable energy must be greater than or
equal to the interim target in any given year. In
the model, the RET target is met by a subsidy
to renewables that is funded by a tax on
non-renewable generators. This is endogenously
modelled so that total renewable generation
meets the target.
Carbon emissions reduction target
The emissions reduction target is modelled
as a cap and trade emissions trading scheme
assumed to apply globally. The emission price
is used as an exogenous assumption in E
4
cast
and is derived from the Australian Treasury
modelling (Australian Government 2008),
adjusted to reflect changes to the proposed
CPRS announced by the Australian Government
in May 2009, and the revised exchange rate
assumptions presented in the Mid-Year
Economic and Fiscal Outlook 2009-10 (table 6).
However, in practice, the carbon price path will
be determined by the worlds carbon market,
within which Australia will trade permits.
Emission prices are modelled as an added cost
on fuels in the electricity generation sector
and in end use sectors, hence affecting the
net marginal cost of electricity generation and
energy demand.
The Clean Energy Initiative
The Clean Energy Initiative is designed to support the research, development and
demonstration of low-emission energy technologies, including industrial scale carbon capture
and storage (CCS) and solar energy.
5
RET targets
year GWh PJ
2010 12 500 45.0
2011 14 825 53.4
2012 17 150 61.7
2013 19 050 68.6
2014 20 950 75.4
2015 22 850 82.3
2016 27 450 98.8
2017 32 050 115.4
2018 36 650 131.9
2019 41 250 148.5
2020 45 850 165.1
2021 to 2030 45 000 162.0
Source: ORER 2009.
6
Carbon price assumptions
2007-08 dollars
year 5% emissions reduction target
A$/tCO
2
e
2007-08 0
2011-12 8.9
2012-13 21.5
2019-20 28.2
2029-30 41.8
Australian energy projections to 2029-30 abare.gov.au 10.02
25
Under the CCS flagships program, support will be given for the construction and
demonstration of large-scale integrated carbon capture and storage projects in Australia with
a target to create 1000 megawatts of low emission fossil fuel electricity generation capacity.
Also part of the Clean Energy Initiative is the Solar Flagships Program which will support the
construction and demonstration of large-scale solar power stations in Australia with a target
of 1000 megawatts of electricity generation capacity. This was modelled using a direct subsidy
from the government.
Under both programs, the commissioning of projects is assumed to commence after 2015.
NSW Greenhouse Gas Reduction Scheme
The New South Wales Greenhouse Gas Reduction Scheme requires electricity retailers and
other liable parties to meet mandatory greenhouse gas reduction benchmarks. The scheme
is implemented in the model by requiring total emissions from state electricity generation to
be less than or equal to the product of targeted per person emissions and state population.
In effect, the price of carbon is internalised in state electricity supply decisions. However, it
is assumed that the scheme will cease upon the commencement of the carbon emissions
reduction target in 2011-12.
Queensland Gas Scheme
The Queensland Gas Scheme requires electricity retailers and other liable parties to source
at least 13 per cent of their electricity from natural gas-fired generation. On 1 July 2008, the
requirement was increased to 15 per cent in 2010 and up to 18 per cent thereafter. The scheme
has been approximated in the model by requiring the share of natural gas based electricity
in Queensland to be greater than or equal to 13 per cent in 2009 and 15 per cent in 2010.
In effect, producers of gas based electricity receive a subsidy which is funded by all other
generators. In the model, this scheme is terminated from 2011-12 with the introduction of the
carbon emissions reduction target.
Victorian Renewable Energy Target
The Victorian Governments Renewable Energy Target (VRET), which requires that 10 per
cent of total electricity generation be sourced from renewable energy sources by 2016, was
implemented in the model from 2007-08 to 2009-10 before the legislated transition in 2010
into RET. In the model, generators of renewable electricity under RET receive a subsidy which is
funded by all other non-renewable sources of power.
26
4
This chapter presents the outlook for Australian energy consumption for the period 2007-08 to
2029-30 under the policy settings outlined in chapter 3. The projections cover primary energy
consumption by fuel and sector. Final energy consumption by fuel and end use activity, and
the outlook for electricity generation are also provided. The discussion focuses primarily on
national trends, although key trends at state levels are also highlighted.
Total primary energy consumption
Total primary energy consumption growth has shown a downward trend since the 1970s,
reflecting changes to Australias economic structure and the effect of technological
developments and government policies on energy efficiency in energy conversion and end
use sectors. In the 1990s, energy consumption grew by an average annual rate of 2.3 per cent,
followed by growth of 1.9 per cent a year in the 10 years to 2007-08.
Over the outlook period, growth in energy consumption is expected to continue to be
moderate, with an average annual growth rate of 1.4 per cent from 5724 petajoules in 2007-08
to 7715 petajoules in 2029-30 (table 7). This declining trend in growth reflects a number of
factors.
Between 2009-10 and 2019-20, significant policy measures are being introduced, namely the
RET and the emissions reduction target, both of which are expected to lead to an increase in
energy prices, and an associated dampening effect on energy demand. Partly offsetting this
trend, economic growth in Australia is assumed to return to its long-term potential as world
economic performance improves.
The final decade of the outlook period shows the most significant decline in the growth rate
for energy consumption, which primarily reflects increasing carbon prices under the emissions
reduction target and lower gross state product assumptions.
Aggregate energy intensity trends
Australias aggregate energy intensity (measured as total domestic energy consumption
per dollar of GDP) declined by an average of around 1 per cent a year over the past 20
years (Sandu and Petchey 2009). Over the next two decades, Australias energy intensity is
projected to decline by around 1.4 per cent a year, indicating a significant shift in Australias
economic structure (gure i). A major influence on this trend is the higher growth occurring
in less energy-intensive sectors such as the commercial and services sector relative to more
energy-intensive sectors such as manufacturing. Also driving this projected trend is improved
efficiency through technological improvement and fuel switching.
Energy consumption
Australian energy projections to 2029-30 abare.gov.au 10.02
27
Primary energy consumption,
by fuel
In 2007-08, non-renewables accounted for
around 95 per cent of the primary energy
consumed in Australia. Of the non-renewables,
coal represented 37 per cent of primary energy
consumed; oil, 36 per cent; and gas (including
natural and coal seam gas), 22 per cent. Over
the long term, the share of coal in total primary
energy consumption is projected to fall to 23
per cent (table 7). In contrast, the share of gas
(natural gas and coal seam gas) is projected to
increase to account for one-third of primary
energy consumption.
Gas is projected to be the fastest growing
fossil fuel over the projection period. Gas
consumption is projected to rise by 3.4 per cent a year over the outlook period, with total
primary demand for natural gas projected to more than double to reach 2575 petajoules by
2029-30. This growth in demand is driven primarily by the electricity generation sector and
the mining sector, and reflects the shift to less carbon-intensive fuels in a carbon constrained
environment. Much of this growth is at the expense of coal. The growth in gas consumption is
expected to be stronger in the period to 2020, consistent with the emergence of technologies
with a weaker carbon footprint post-2020.
Energy intensity trends
i
0
50
100
150
200
2029
-30
2024
-25
2019
-20
2014
-15
2009
-10
GDP index
energy consumption index
intensity index
7
Primary energy consumption, by fuel (PJ)
average
share (%) annual growth (%)
2007-08 2029-30 2007-08 2029-30 2007-08 to 2029-30
Fossil fuels 5 447 7 125 95 92 1.2
Coal 2 124 1 763 37 23 0.8
Black coal 1 514 1 311 26 17 0.7
Brown coal 610 452 11 6 1.4
Oil 2 083 2 787 36 36 1.3
Gas 1 240 2 575 22 33 3.4
Renewables 277 590 5 8 3.5
Hydro 44 46 <1 <1 0.2
Wind 14 160 <1 2 11.6
Bioenergy 212 340 4 4 2.2
Solar 7 24 <1 <1 5.9
Geo thermal <1 20 <1 <1 18.4
Total 5 724 7 715 100 100 1.4
28
Australian energy projections to 2029-30 abare.gov.au 10.02
In 2007-08, around 5 per cent of energy consumption in Australia was sourced from renewable
energy. With the implementation of RET, the share of renewable energy is projected to
increase substantially to account for 8 per cent of primary energy consumption in 2029-30. This
implies an average annual growth rate of 3.5 per cent, with strong growth expected to occur
particularly in wind energy. Most of the expansion in renewable energy is projected to take
place in the period to 2019-20 reflecting the implementation of the RET.
Overall, these results suggest that a 5 per cent emissions reduction target, combined with
the RET, are likely to lead to significant changes to Australias energy mix, characterised by a
growing contribution from gas and renewable energy.
Primary energy consumption, by state
Primary energy consumption is projected to increase across all states over the next two decades.
However, in line with assumptions about economic activity, energy resource endowments,
economic structure and the significance of mining in the economic base, and state specific
policy settings, growth in primary energy consumption is expected to vary across states (table 8).
Relatively higher gross state product assumptions, together with relatively high shares of
mining in economic output and relatively high degrees of export orientation, are key factors
underpinning the relatively higher energy consumption growth rates in Western Australia and
Queensland (table 8).
New South Wales and South Australia are expected to have more moderate growth in energy
consumption, reflecting more modest economic growth prospects. In New South Wales,
energy consumption is projected to rise from 1640 petajoules to 2113 petajoules, growing
at a rate of 1.2 per cent a year (table 8). New South Wales remains the largest contributor to
Australias primary energy consumption over the period to 2030. Energy consumption in South
8
Primary energy consumption, by state (PJ)
average
share (%) annual growth (%)
2007-08 2029-30 2007-08 2029-30 2007-08 to 2029-30
New South Wales 1 640 2 113 29 27 1.2
Victoria 1 362 1 495 24 19 0.4
Queensland 1 299 2 010 23 26 2.0
South Australia 302 374 5 5 1.0
Western Australia 860 1 383 15 18 2.2
Tasmania 126 147 2 2 0.7
Northern Territory 134 194 2 3 1.7
Australia 5 724 7 715 100 100 1.4
Australian energy projections to 2029-30 abare.gov.au 10.02
29
Australia is projected to increase at a rate of 1 per cent a year, with its share of total primary
energy consumption remaining constant over the period to 2030 (table 8).
Victoria is projected to have the lowest growth in primary energy consumption, reflecting the
significant effect of a carbon price on the costs of brown coal-fired electricity generation and
other emission-intensive industries such petroleum refining and chemicals. In absolute terms,
energy consumption in Victoria is projected to increase from 1362 petajoules in 2007-08 to
1495 petajoules in 2029-30.
Primary energy consumption, by sector
At the sectoral level, the main drivers of primary energy consumption are the electricity
generation sector, the transport sector and the manufacturing sector. These sectors are
projected to account for 57 per cent of the increase in primary energy consumption from
2007-08 to 2029-30.
The electricity generation sector accounted for the largest share (43 per cent) of primary
energy consumption in 2007-08. Total primary energy consumption in the power generation
sector is projected to increase from 2485 petajoules in 2007-08 to 3004 petajoules in 2029-30
(table 9). Over the projection period, the fuel mix in electricity generation is expected to
gradually switch away from coal to gas and renewable energy, reflecting the combined effect
of the emissions reduction target and the RET on the relative competitiveness of different
energy sources. Further details about the electricity generation sector projections are provided
below.
The transport sector (excluding electricity used in rail transport) absorbed one-quarter of
primary energy consumption in 2007-08 and continues to rely heavily on oil. Consumption
of oil and petroleum products in the transport sector is expected to grow steadily over the
9
Primary energy consumption, by sector (PJ)
average
share (%) annual growth (%)
2007-08 2029-30 2007-08 2029-30 2007-08 to 2029-30
Electricity generation 2 485 3 004 43 39 0.9
Agriculture 96 139 2 2 1.7
Mining 270 996 5 13 6.1
Manufacturing a 1 118 1 302 20 17 0.7
Transport 1 456 1 896 25 24 1.2
Commercial and
residential 298 377 5 5 1.1
Total 5 724 7 715 100 100 1.4
a Includes petroleum refining.
30
Australian energy projections to 2029-30 abare.gov.au 10.02
projection period at an average rate of 1.2 per cent a year driven largely by economic growth.
However, the share of the transport sector in primary energy consumption is projected to fall
marginally from 25 per cent to 24 per cent over the period to 2029-30, underpinned by high
fuel prices and improvements in the fuel efficiency of vehicles.
The manufacturing sector is the third largest user of primary energy in Australia, accounting
for a share of 20 per cent in 2007-08. This sector covers a number of relatively energy-intensive
sub-sectors such as petroleum refining, iron and steel, aluminium smelting and minerals
processing. While energy consumption in the manufacturing sector is projected to increase at
an average annual rate of 0.7 per cent over the outlook period, the share of the sector in total
primary energy consumption is expected to decline, which reflects a progressive structural
shift toward less energy-intensive sectors under an emissions reduction target.
The mining sector, while contributing to only 5 per cent of primary energy consumption in
2007-08, is projected to have the highest energy consumption growth rate over the next
two decades. This reflects the expected recovery in global demand for energy and mineral
commodities and the large number of mineral and energy projects (including LNG and coal
seam gas) assumed to come on stream over the outlook period. As of October 2009, there
were 74 minerals and energy projects at an advanced stage of development on ABAREs major
projects list, with total capital expenditure of around $116 billion (ABARE 2009c). These projects
are either committed or under construction, and cover a wide range of energy, mineral mining,
and mineral processing projects (map 2). This significant investment underway is a major driver
of the expected expansion of the mining sector and associated growth in energy consumption
over the projection period. By 2029-30 the sector is projected to account for 13 per cent or 996
petajoules of primary energy consumption.
Electricity generation
Gross electricity generation in Australia is projected to grow over the outlook period by an
average of 1.8 per cent a year, from 889 petajoules (247 terawatt hours) in 2007-08 to 1318
petajoules (366 terawatt hours) in 2029-30 (table 10).
The projected growth in electricity generation varies across regions, reflecting a number of
factors including available technology, primary energy input availability and prices, capital
cost and interregional transmission capacity. For states that are within the integrated National
Electricity Market (New South Wales, Queensland, Victoria, South Australia and Tasmania),
the figures provided in table 10 reflect electricity consumed as well as market determined
electricity flows across regions.
New South Wales is likely to remain the largest producer of electricity in Australia. Nonetheless,
relatively high growth rates in electricity generation over the period to 2029-30 are also
expected in South Australia, with a growth rate of 3.4 per cent a year over the projection
period. The dominant contributor to this growth is renewable energy (mainly wind energy),
which is projected to grow at an average rate of 5 per cent a year. Gas-fired electricity
generation is also projected to grow by 6 per cent a year.
Australian energy projections to 2029-30 abare.gov.au 10.02
31
10
Electricity generation, by state (TWh)
average
share (%) annual growth (%)
2007-08 2029-30 2007-08 2029-30 2007-08 to 2029-30
New South Wales 80 127 32 35 2.2
Victoria 52 64 21 18 0.9
Queensland 61 86 25 23 1.6
South Australia 10 20 4 5 3.4
Western Australia 29 46 12 13 2.1
Tasmania 12 17 5 5 1.6
Northern Territory 4 6 1 2 2.1
Australia 247 366 100 100 1.8
LLGLNO
rooseogas |e||ne
caltal clty
m
a
p
2
Minerals and energy - major development projects
October 2009
Adelalde Adelalde
Hobart Hobart
8rlsbane
Canberra
Oarwln
Velbourne
8ydney
3ooo|ngtongold
|ount Catt||n
lithium
kw|nana rocess|ng|ant
|O
.
|gment titanium minerals
vors|ey let|nery Ltt|c|ency 8
Crowt|roject alumina
|esa A iron ore
Lxtens|onl||| L8O iron ore
Lam|er3unbury
stage gas pipeline
Hv8Hort|lan||n3 LNG
vanCog|oil
CorgonLNG
8|nolronroject iron ore
|utoLNG
Hv8CvLloil
yrenees oil
0ta|o|nt 3ert|
iron ore infrastructure
le|noeer gas t|e|o,
Lev|| Cree| gas rocess|ng|ant
liquid helium|ant
|ontara/8|ua oil
Abbot o|nt coal infrastructure
3oynels|anosme|ter aluminium
3|ac| vater Cree| o|vers|oncoal
k|er gas
urrum gas
Cameby Lowncoal
lA oeve|oment coal seam gas
HewAc|ano8tage coal
8out|C|s|anogas pipeline
3|a|et|e|o8out|coal
|oo|arbenstage: coal
|ount Art|ur coal
|angoo|a coal
Longtom gas
Hewcast|eexort term|na| coal infrastructure
kooragang|s|anocoal terminal
exans|on
Lasterngas pipeline
3r|sbanecoal terminal exans|on
/arwunret|nery stage. alumina
lenry gas
8naer
mineral
sands
$o:oom
$:o:oom
$o::ooom
>$:ooom
Ca|ta| exeno|ture
||ne/
|attorm
l|y|nglox stage. nickel
8otteoQuo|| nickel
aoo|ngtonexans|on
gold
H|c|o|as Lowns manganese
C|arters owers gold
|ungana gold
kestre| coal
Currag|coal
Carboroug|Lowns coal
l|ogeway Lees
gold
vesternAustra||an
lron Oreinfrastructure
3roc|man,
roject iron ore
la|oCrowt| ,ano iron ore
Luc|a 3as|n
mineral sands
C|a||enger
exans|ongold
|oomba to8yoney
gas pipeline
v||teLam gold
Harrabr| (8tage:) coal
||n|mba|3an| ||rola|| L|ne(8tage:)
coal infrastructure
loneymoon
uranium
C|ermont coal
|oranba|Ammonium Nitrate
Coabe||a tolngsoon
ra|| ou||cat|on coal infrastructure
Hort|ar|es
L,8copper
Argy|ediamonds
Lar||nglangeL8O
bauxite
Lona |ay gold
3r|g|tstar gold
8out|Lavertongold
a| reoes|gnnickel
8t lves
(At|ena unoergrouno)
gold
rocess|ng
tac|||ty
erth
32
Australian energy projections to 2029-30 abare.gov.au 10.02
In Western Australia, gross electricity output is projected to increase by 59 per cent over the
projection period, from 29 terawatt hours in 2007-08 to 46 terawatt hours in 2029-30 (table 10).
Much of this expansion is driven by gas-fired electricity generation, which is projected to grow
at an average rate of 2 per cent a year. At this rate, gas-fired electricity generation will account
for 68 per cent of the projected expansion in the states electricity generation between
2007-08 and 2029-30.
In comparison, electricity generation in Victoria is projected to grow at a rate below the
national average. Electricity in this state is based mainly on brown coal. Under the emissions
reduction target modelled in this analysis, a price on carbon emissions reduces the
competitiveness of this power source relative to other less carbon-intensive fuels. As a result,
unless Victoria builds its own low emission generation capacity, it is projected to become more
dependent on imports from other regions to meet its electricity needs.
Under a policy setting that includes both the RET and a 5 per cent emissions reduction target,
the relative shares of non-renewables and renewables in electricity generation are expected to
change significantly over the projection period to 2029-30. In 2007-08, 93 per cent of electricity
was generated from non-renewables (coal, oil and gas), and the balance from renewable
energy sources. As a result of the incentives provided under the RET, the share of renewables
is projected to increase to around 20 per cent by 2019-20. This reflects the effect of the RET,
which requires a ramp-up of renewable energy in the period to 2020. After 2019-20, renewable
electricity generation continues to increase, albeit at a slower rate.
Within the category of non-renewable energy, the key change projected over the outlook
period is a substitution away from coal-fired generation to gas-fired generation. While coal is
expected to continue to dominate the electricity fuel mix under the assumed policy setting,
emission pricing will lead to a switch away from higher-emission energy sources for electricity
generation. Coal-fired electricity (both black and brown coal) generation is projected to
decrease at an average rate of 0.6 per cent a year over the projection period (table 11), leading
to a fall in its share from 72 per cent in the base year to 43 per cent in 2029-30.
While these results imply the partial retirement or mothballing of some of the existing coal
power plants over the outlook horizon, in reality there are some factors that may reduce the
effect of emission pricing on these plants at least in the medium term. For example, hedging
contracts and other financial considerations can be expected to provide some degree of
insulation to these plants. Classified as a strongly affected industry in the Carbon Pollution
Reduction Scheme Green Paper, it is also possible that the industry could be granted different
forms of assistance which are not taken into account explicitly in the modelling in this report.
The longer term role of coal is heavily dependent on technological developments related to
carbon capture and storage. The timing for the deployment of carbon capture and storage
(CCS) technologies hinges on the economic viability of this technology given emission prices.
In the modelling, the deployment of carbon capture and storage technologies for new plants
is not triggered to any significant extent because of their relatively high costs. Nonetheless,
the modelling results suggest that, largely because of the development of subsidised
projects, some coal-fired electricity generation with CCS may emerge by 2030. In addition,
Australian energy projections to 2029-30 abare.gov.au 10.02
33
the significant global support to overcome technical and financing hurdles faced by CCS
technologies (Global CCS Institute 2009) have the potential to bring forward the large-scale,
commercial deployment of CCS technologies for electricity generation and other energy-
intensive industries through accelerated cost reductions associated with learning by doing.
A large part of the decline in coal based electricity is taken up by gas-fired generation
technologies. The share of gas in electricity generation is projected to grow from 19 per cent
in 2007-08 to 37 per cent in 2029-30. This projected increase in gas-fired electricity generation
is partly supported by its major share of currently committed electricity generation capacity
(map 3). As of October 2009, gas and coal seam gas accounted for 60 per cent of the total
capacity of advanced electricity generation projects in Australia (ABARE 2009d).
Gas-fired electricity generation is based on mature technologies with more competitive cost
structures relative to many renewable energy technologies. As such, it has the potential to play
a major role in the transition period until lower emission technologies become more viable.
However, the cost competitiveness of gas as a fuel for electricity generation depends on gas
prices.
Victoria
Tasmania Tasmania
Queensland
Northern Territory
Western Australia
South Australia
New South Wales
Electricity generation - major development projects
October 2009
3
capital city
Bluewaters
stage 2
Mount Stuart
Darling Downs
Colongra gas project
Crookwell 2
Bogong power
development
Musselroe
Hallett 4
Waterloo stage 1
Hallett 2
Mortlake stage 1
Lake Bonney stage 3
Condamine
Kwinana Swift
gas
hydro
oil
solar
wind
CSM
black coal
biomass
LEGEND
0100MW
101300MW
301500MW
>500MW
Perth
Adelaide Adelaide
Hobart
Brisbane
Canberra
Perth
Darwin
Sydney
Melbourne Melbourne
Eraring
Clements Gap
Oaklands
Wind Farm
Owen Springs
m
a
p
34
Australian energy projections to 2029-30 abare.gov.au 10.02
There is a range of perspectives on future gas prices. The modelling undertaken for this report
suggests that domestic gas prices are likely to increase over the next two decades as a result
of interactions between gas demand and gas supply. However, several factors could affect this
outlook, including the renegotiation of existing long-term contracts, the lead time required
to build LNG facilities on the east coast, the pace and level of development of the substantial
coal seam gas resources, the extent of convergence in the eastern gas market and regional and
global LNG markets, and developments in the regional and global LNG markets.
According to the International Energy Agency (IEA 2009b), under a reference scenario with
no changes to existing government policy settings, gas prices are assumed to increase after
2015 in line with increasing demand and higher oil prices. However, the IEA also notes that the
expected gas-to-gas competition in the Pacific region is likely to weaken the links between oil
and gas prices and exert some downward pressure on relative gas prices.
Domestically, the Australian Energy Regulator also points to a number of factors in the east
coast market that may reduce upward pressure on gas prices (AER 2009). These include the
substantial volumes of ramp up gas that are likely to be produced in the lead-up to the
commissioning of coal seam gasliquefied natural gas (CSG-LNG) projects, the large number
of gas basins ensuring diversity of supply, relatively low barriers to entry, and an extensive gas
transmission network linking producing basins.
The uptake of gas-fired generation technologies is apparent in a number of regions. Electricity
generation from gas in Queensland is projected to more than double in the period to 2029-30.
There are several coal seam gas-fired electricity generation projects underway to support
this expansion. The recently commissioned coal seam gas-fired Braemar 2 power station and
two other power stations under construction represent an addition of 1220 megawatts to
electricity generation capacity in Queensland.
11
Electricity generation, by fuel (TWh) a
average
share (%) annual growth (%)
2007-08 2029-30 2007-08 2029-30 2007-08 to 2029-30
Fossil fuels 229 297 93 81 1.2
Coal 178 157 72 43 0.6
Black coal 131 121 53 33 0.4
Brown coal 47 36 19 10 1.2
Gas 46 135 19 37 5.0
Oil 5 5 2 1 0.0
Renewables 18 69 7 19 6.4
Hydro 12 13 5 3 0.2
Wind 4 44 2 12 11.6
Bioenergy 2 3 <1 <1 2.3
Solar <1 4 <1 1 17.4
Geo thermal <1 6 <1 2 18.4
Total 247 366 100 100 1.8
a These figures represent total gross electricity generation output, covering both on-grid and off-grid principal generators, small
generators, and non-scheduled generators. The figures for 2007-08 presented in this may not be identical to actual historical data as
published in ABAREs Australian energy statistics. This is a reflection of model calibration.
Australian energy projections to 2029-30 abare.gov.au 10.02
35
The commissioning of the QSN link and expansion of the South West Queensland Pipeline in
2009 have created an interconnected gas pipeline linking Queensland, Victoria, South Australia,
Tasmania and the ACT. This development is driven by the emerging coal seam gas industry
in Queensland and is expected to support the growth of gas-fired generation in the other
interconnected regions as well.
Gas-fired electricity generation is also projected to increase in Western Australia by an average
of around 2 per cent a year over the projection period to 2029-30 with additional capacity
coming on line in the next few years.
In parallel with the increasing share of gas in the electricity fuel mix, these projections highlight
the significant expansion in the use of non-hydro renewable energy resources between
2007-08 and 2029-30. Wind energy is projected to account for the majority of the increase in
electricity generation from renewable sources over the projection period. Wind is projected to
account for 12 per cent of electricity generation in 2029-30. Within the renewable technology
cluster, wind energy is a proven technology with relatively lower costs, notwithstanding the
influence of site specific factors on these costs. While the projected growth in wind energy
is spread across a number of regions, it is driven primarily by South Australia where a large
number of wind energy projects are currently being developed (AER 2009).
Given Australias large potential bioenergy resources, the potential commercialisation of
second generation technologies using a new range of non-edible biomass feedstocks, and
the RET, bioenergy has the potential to make a growing contribution to renewable electricity
generation in Australia. However, this growth prospect is likely to be constrained to some
extent by competition for bioenergy resources in industries, water availability, and logistical
issues associated with handling, transport and storage.
Currently, Australias bioenergy resources are dominated by bagasse (sugar cane residue), wood
waste, and capture of gas from landfill and sewage facilities for generating heat and electricity.
From 1989-90 to 2007-08, electricity generation from bioenergy grew at an average rate of 6 per
cent a year and the share of bioenergy in total electricity generation also increased over that
period, although modestly, to less than 1 per cent.
In these projections, bioenergy for electricity generation is projected to grow by 2.3 per a year
over the period to 2029-30 but will still account for less than 1 per cent of electricity generated
in that year. More than 60 per cent of the projected growth in the use of bioenergy for
electricity generation is projected to occur in Queensland.
In comparison, solar energy is projected to grow at an average annual rate of 17 per cent, albeit
from a low base. Electricity generation from solar energy in Australia is currently almost entirely
sourced from photovoltaic (PV) installations. Electricity generation from solar thermal systems
is currently limited to small pilot projects, although interest in solar thermal systems for large-
scale electricity generation is increasing.
The high investment costs of solar technologies represent the most important barrier to
their deployment. However, there is considerable scope for the cost of these technologies to
decline significantly over time. The competitiveness of solar energy, and renewable energy
36
Australian energy projections to 2029-30 abare.gov.au 10.02
sources generally, will also depend on government policies aimed at reducing greenhouse
gas emissions. In this context, the RET, the Clean Energy Initiative and the proposed emissions
reduction target are all expected to underpin the growth of solar energy in Australia over the
outlook period.
Similarly to solar energy, Australia is considered to have considerable geothermal energy
potential. However, Australias geothermal resources are currently sub-economic because
the commercial viability of geothermal technologies for electricity generation has not yet
been demonstrated in Australia. Electricity generation from geothermal energy in Australia is
currently limited to pilot power plants producing small amounts of electricity. Further, a major
impediment to geothermal electricity generation in Australia is the distance of many of the
resources from existing transmission lines or consumption centres.
Given the major investment in geothermal energy research, development and demonstration
(RD&D) by both government and industry in Australia, it is considered likely that commercial
scale geothermal power will become commercially viable over the outlook period. However,
given the time required to achieve commercial viability, and the long lead time required
to bring a geothermal power plant into operation, geothermal energy is not likely to play
a significant role in electricity generation until the latter part of the outlook timeframe. In
these projections, geothermal energy is projected to account for 1.5 per cent of electricity
generation by 2029-30.
Hydroelectricity generation in volume terms is projected to remain broadly unchanged over
the outlook period, reflecting the limited availability of suitable locations for the expansion
of large grid based hydroelectricity generation and water supply constraints. Most of the
projected expansion in capacity is assumed to be associated with the upgrading of existing
equipment and small-scale schemes.
Final energy consumption, by fuel
Total final energy consumption, that is the total amount of energy used in end use applications,
is projected to increase from 3733 petajoules in 2007-08 to 5019 petajoules in 2029-30. This is
an increase of around 34 per cent over the projection period and an average annual rate of
increase of 1.4 per cent (table 12). This compares with an average annual growth rate of 2 per
cent in the 10 years to 2007-08. Electricity is projected to continue to grow strongly to meet
energy demand in end use sectors. This will reduce the relative share of gas in final energy
consumption by 2030, although the amount of gas consumption is projected to increase by
22 per cent between 2007-08 and 2029-30. Renewables are projected to have the fastest
growth rate, with an average rate of 1.9 per cent a year over the projection period.
Final energy consumption, by sector
The main drivers of final energy consumption in the Australian economy are the transport and
manufacturing sectors. In 2007-08 these sectors accounted for 39 per cent and 32 per cent of
final energy consumption, respectively (table 13).
Australian energy projections to 2029-30 abare.gov.au 10.02
37
Transport
With an average rate of growth of 1.2 per cent a year between 2007-08 and 2029-30, the
transport sector is expected to account for 34 per cent (or 443 petajoules) of the total
projected increase in final energy consumption. However, the share of the transport sector
in total energy consumption is projected to fall slightly over the period, from 39 per cent in
2007-08 to 38 per cent by 2029-30 (table 13). These projections reinforce the downward trend
in road transport fuel consumption growth over the past 30 years. Energy use in the transport
sector is the main driver of the outlook for oil and oil-based products, which is projected to
increase at an average annual rate of 1.3 per cent (table 12).
Within the transport sector, the road transport segment is the largest contributor to energy
consumption. In 2007-08, road transport accounted for around three-quarters of the energy
used in the sector, which in turn was dominated by passenger transport. Energy use in the
road transport sector is projected to grow by 0.9 per cent a year over the projection period,
driven largely by the freight transport industry. Automotive gasoline is the main fuel used in
the transport sector and accounted for 650 petajoules in 2007-08.
Energy use in the air transport sector (both domestic and international) is projected to grow
firmly over the projection period, reflecting rapid growth in private passenger demand for air
transport. With a long-term growth rate of 2.3 per cent a year, energy use in the air transport
sector is projected to increase to 454 petajoules in 2029-30. As a result, the air transport sector
is projected to account for almost one-fourth of the transport sectors energy use in 2029-30.
The transport sector is highly dependent on oil-based petroleum products and this
dependence is expected to continue over the projection period. In 2007-08, liquefied
petroleum gas (LPG) and biofuels (ethanol and biodiesel) accounted for around 4 per cent
and less than 1 per cent, respectively, of the transport fuel mix. There are a range of alternative
low-carbon fuels that have the potential to complement or replace conventional oil in the
longer term such as coal-to-liquids, gas-to-liquids and second generation biofuels. However,
significant further research, development and demonstration would be required to allow these
fuels to make a substantial contribution to meeting transport energy needs. Similarly, electric
vehicles and hybrid electric cars are not expected to make a significant contribution to the
road transport fuel mix by 2030.
12
Final energy consumption, by fuel (PJ)
average
share (%) annual growth (%)
2007-08 2029-30 2007-08 2029-30 2007-08 to 2029-30
Black coal 151 153 4 3 0.1
Petroleum products 1 913 2 566 51 51 1.3
Gas 692 845 19 17 0.9
Renewables 172 262 5 5 1.9
Electricity 803 1 193 22 24 1.8
Total 3 733 5 019 100 100 1.4
38
Australian energy projections to 2029-30 abare.gov.au 10.02
Manufacturing
The manufacturing sector is the second largest energy end user in Australia, with minerals
processingmainly iron and steel making, alumina refining and aluminium smelting
contributing to the relatively high energy intensity of the sector. Over the past 10 years, the
manufacturing sector has grown relatively slowly such that its share of total final energy
consumption remained largely constant at around 32 per cent. In these projections, the
manufacturing sector as a whole is projected to grow at 0.6 per cent a year in the period to
2029-30, supported by growth in the economy and ongoing global demand for resource
based energy-intensive output. However, the projected growth rate is well below the average
for all sectors (1.4 per cent). This reflects the continuing long-term structural shift in the
Australian economy toward the commercial and services sector, which is further reinforced
by an emissions reduction target. By increasing the cost of energy, emission pricing provides
incentives to reduce the energy intensity of the economy. As such, the share of manufacturing
in final energy consumption is projected to decline to 27 per cent by 2029-30. Within the
manufacturing sector, lower growth in energy consumption is expected for the relatively
energy-intensive sub-sectors.
Final energy consumption in the iron and steel industry is projected to grow at an average rate
of 0.7 per cent a year over the projection period, to 136 petajoules by 2029-30 (table 14). This
is partly underpinned by new projects such as the recently completed upgrade to the Port
Kembla steelworks and the planned Australian Iron and Steel project in Queensland.
Energy consumption in the non-ferrous metal industries, including aluminium smelting and
other non-ferrous metals, is expected to increase by 0.5 per cent a year over the period to
2029-30.
Mining
Reflecting the development of a large number of mineral and energy mining projects
assumed to take place over the projection period, mining is projected to increase its share of
total final energy consumption. The mining sectors share of total final energy consumption
is projected to rise from 7 per cent in 2007-08 to more than 11 per cent in 2029-30 (table 13),
growing at an average annual rate of 3.3 per cent. This growth is slower than the rapid growth
13
Final energy consumption, by sector (PJ)
average
share (%) annual growth (%)
2007-08 2029-30 2007-08 2029-30 2007-08 to 2029-30
Agriculture 103 148 3 3 1.6
Mining 266 540 7 11 3.3
Manufacturing 1 207 1 376 32 27 0.6
Transport 1 465 1 908 39 38 1.2
Commercial and
residential 692 1 048 19 21 1.9
Total 3 733 5 019 100 100 1.4
Australian energy projections to 2029-30 abare.gov.au 10.02
39
experienced in recent years, reflecting, in part, an assumed 0.5 per cent a year reduction in the
energy intensity of mining industries.
Nonetheless, the projected growth in energy consumption in the mining sector is robust
compared with projected growth in other sectors. This is driven by the substantial increase
in the relatively energy-intensive production of liquefied natural gas (LNG). Over the period
2007-08 to 2029-30, the production of LNG is set to grow at an average rate of around 9.5 per
cent a year. The outlook for the LNG sector is discussed in more detail below.
Commercial and residential
The commercial and residential sector comprises wholesale and retail trade, communications,
finance, government, community services, recreational industries and households. In 2007-08,
the commercial and residential sector accounted for around 19 per cent of total final energy
consumption and is projected to grow to 21 per cent by 2030. The sector is particularly
electricity-intensive and is expected to be a major source of growth in electricity consumption
over the medium to longer term. Over the projection period, energy use in this sector is
projected to grow by 1.9 per cent a year (table 13).
Given population growth assumptions, household income, energy prices and lifestyle choices
are the main variables affecting energy consumption in the residential sector. Energy is a
relatively small component of household expenditure (ABS 2007). Further, current pricing
arrangements, particularly for electricity, do not provide strong time and cost-reflective price
signals to residential energy consumers. For these reasons, a high degree of responsiveness
to prices has not generally been observed. However, the Council of Australian Governments
(COAG) has committed to a national rollout of smart meters (meters that allow energy
consumers to see the real time cost of their energy consumption) where the benefits outweigh
the costs. This is designed to foster more effective demand side management and enhanced
demand side response.
14
Final energy consumption, by manufacturing subsector (PJ)
average
share (%) annual growth (%)
2007-08 2029-30 2007-08 2029-30 2007-08 to 2029-30
Wood, paper and printing 69 81 6 6 0.8
Basic chemicals 184 165 15 12 0.5
Iron and steel 118 136 10 10 0.7
Non-ferrous metal
products 503 560 42 41 0.5
Other manufacturing 334 434 28 32 1.2
Total 1 207 1 376 100 100 0.6
40
Australian energy projections to 2029-30 abare.gov.au 10.02
Agriculture
Agriculture holds a minor share of final energy consumption with a share of less than 3 per
cent in 2007-08. Over the outlook period, agricultural energy use is projected to increase
by 1.6 per cent a year (table 13), which reflects, in part, an assumed reduction in the energy
intensity of agriculture of 0.5 per cent a year. Petroleum products are the main fuel used on
farms, accounting for more than 90 per cent of the total fuel mix.
41
5
The main sources of energy produced in Australia on an energy content basis are coal,
uranium and gas. With the exception of crude oil and refined petroleum products, Australia
is a net exporter of energy commodities. In 2007-08, production of coal was 9306 petajoules,
or 74 per cent of total energy production (excluding uranium). In physical terms, total coal
production was 426 million tonnes. Gas accounted for 16 per cent of total energy production,
followed by crude oil and condensate and naturally occurring LPG (8 per cent) and renewables
(hydroelectricity, wind energy, bioenergy and solar energy) at 2 per cent. Although Australia
is a significant producer of uranium oxide, it is not included in the projections as it is not
consumed as a fuel in Australia and, therefore, does not affect the domestic energy balance.
Total production of energy in Australia (excluding uranium) is projected to grow at an
average rate of 2.9 per cent a year over the projection period, slightly lower than the growth
rate in the 10 years to 2007-08. At this rate, Australian production of energy is projected to
increase by 87 per cent to reach 23 637 petajoules in 2029-30 (table 15). Gas production is
projected to increase from 2040 petajoules (41 975 gigalitres) in 2007-08 to 8505 petajoules
(174 979 gigalitres) in 2029-30, or 36 per cent of total energy production. At the same time, the
combined share of crude oil and naturally occurring LPG is projected to fall to 3 per cent of total
energy production. The share of coal in total energy production is projected to fall from 74 per
cent in 2007-08 to 59 per cent by 2029-30.
Energy production and trade
15
Energy production, by fuel (PJ
average
share (%) annual growth (%)
2007-08 2029-30 2007-08 2029-30 2007-08 to 2029-30
Fossil fuels 12 394 23 047 98 98 2.9
Coal 9 306 13 875 74 59 1.8
Black coal 8 696 13 423 69 57 2.0
Brown coal 610 452 5 2 1.4
Oil 945 425 7 2 3.6
LPG 103 243 <1 1 4.0
Gas 2 040 8 505 16 36 6.7
Renewables 277 590 2 2 3.5
Hydro 44 46 <1 <1 0.2
Wind 14 160 <1 <1 11.6
Bioenergy 212 340 2 1 2.2
Solar 7 24 <1 <1 5.9
Geo thermal <1 20 <1 <1 18.4
Total 12 671 23 637 100 100 2.9
42
Australian energy projections to 2029-30 abare.gov.au 10.02
As the projected growth in non-uranium energy production exceeds that of primary energy
consumption, Australias exportable surplus of energy is projected to increase as a proportion
of consumption over the projection period. In 2007-08, the ratio of Australias primary energy
consumption to non-uranium energy production is estimated to have been 45 per cent.
By 2029-30, the ratio of Australias primary energy consumption to non-uranium energy
production is projected to fall to 33 per cent (gure j).
Black coal production and exports
Black coal, which includes both thermal and metallurgical coal, is projected to remain
Australias dominant energy export, accounting for around 49 per cent of the total growth in
Australian energy exports over the projection period. The projected annual growth rate of 2.4
per cent is built on expectations that global demand for coal will continue to increase in the
period to 2030 as a result of increased demand for electricity and steel-making raw materials,
particularly in emerging market economies in Asia. Australia, with its abundant reserves
of high-quality coal, has the potential to contribute significantly to meeting this increased
demand, subject to adequate investment in mine and related infrastructure development. By
2029-30, Australian black coal exports are projected to reach 12 112 petajoules, equivalent to
around 450 million tonnes (table 16 and gure k).
Black coal exports will be supported by the expansion of infrastructure and mining capacity in
New South Wales and Queensland over the projection period.
In New South Wales, port capacity could increase by as much as 100 million tonnes with
upgrades to the Kooragang Island and Newcastle Coal Infrastructure terminals.
Energy balance
j
PJ
5000
10 000
15 000
20 000
25 000
2029
-30
2027
-28
2025
-26
2023
-24
2021
-22
2019
-20
2017
-18
2015
-16
2013
-14
2011
-12
2009
-10
2007
-08
consumption production net exports
Australian energy projections to 2029-30 abare.gov.au 10.02
43
In Queensland, the Abbot Point Coal Terminal could be expanded to handle 110 million tonnes
a year and the proposed Wiggins Island terminal near Gladstone has a potential capacity of
80 million tonnes a year. The increased port capacity in Queensland will be supported by
upgrades to rail infrastructure including the Goonyella to Abbot Point Expansion Project and
the Surat Basin Rail.
Thermal coal mines in New South Wales that could add to increased production capacity
include Xstratas Mangoola mine (10.5 million tonnes a year), Felix Resources Moolarben mine
(20 million tonnes a year) and Rio Tintos 8.5 million tonnes a year Mount Pleasant Project. In
Queensland, increased thermal coal production over the next 20 years could be supported
by the development of the Galilee Basin. Currently three projects are under consideration,
16
Net trade in energy (PJ)
average annual growth (%)
2007-08 2029-30 2007-08 to 2029-30
Black coal 7 182 12 112 2.4
Oil a 1 075 2 211 3.3
LPG 41 92 3.8
LNG 800 5 930 9.5
Total 6 947 15 922 3.8
a Includes crude oil, other refinery feedstock and petroleum products.
Black coal balance
k
PJ
3000
6000
9000
12 000
15 000
2029
-30
2027
-28
2025
-26
2023
-24
2021
-22
2019
-20
2017
-18
2015
-16
2013
-14
2011
-12
2009
-10
2007
-08
consumption production net exports
44
Australian energy projections to 2029-30 abare.gov.au 10.02
including Alpha, Kevins Corner and China First. These projects could each produce in excess of
30 million tonnes a year when in operation.
Major metallurgical coal projects in Queensland that are assumed to commence production
during the projection period include the Belvedere coking coal mine, with a capacity of 9 million
tonnes, and the BHP Billiton Mitsubishi Alliances (BMA) Caval Ridge (5.5 million tonnes) and
Daunia (4 million tonnes).
Natural gas production and LNG exports
Australia has significant volumes of natural gas that are increasingly being developed for
domestic use and for export as LNG (Geoscience Australia and ABARE 2010). In 2007-08, total
gross output of natural gas in Australia was 2040 petajoules (table 17), including LNG. On a
regional basis, the largest conventional gas resources are located mostly off the north-west
coast of Western Australia, with natural gas production in the western gas market totalling
1091 petajoules or 53 per cent of total national production in 2007-08. Gross gas production in
the eastern and northern markets is estimated to have been around 691 and 257 petajoules,
respectively, in 2007-08.
Gross natural gas production, including LNG, in the western market is projected to grow
strongly, at an average rate of 7.1 per cent a year, to reach 4968 petajoules in 2029-30 (table 17
and gure l). This is underpinned by increasing demand in the domestic market and increasing
global demand for LNG.
Gas balance
l
PJ
2000
4000
6000
8000
10 000
2029
-30
2027
-28
2025
-26
2023
-24
2021
-22
2019
-20
2017
-18
2015
-16
2013
-14
2011
-12
2009
-10
2007
-08
consumption production net exports
Australian energy projections to 2029-30 abare.gov.au 10.02
45
Growth in LNG exports will be supported by the development of a number of greenfield
projects, including the Gorgon LNG, Ichthys, Wheatstone and Browse projects By 2029-30, LNG
exports from the western market have the potential to reach 73 million tonnes (3986 petajoules),
reflecting an average annual growth rate over the projection period of 9 per cent.
A striking feature of the gas outlook in the eastern gas market is the increasing contribution
of coal seam gas (CSG) to the gas production profile (table 17). In 2007-08, CSG accounted
for around 6 per cent of total gas consumption in Australia and 80 per cent in Queensland.
Production of CSG in Queensland and New South Wales is projected to continue its high
growth trajectory, increasing from 118 petajoules in 2007-08 to 2507 petajoules by 2029-30,
when it would represent 88 per cent of gas production in the eastern gas market. A significant
proportion of this CSG will be consumed domestically, supporting the projected growth
in gas-fired electricity generation, particularly in Queensland and New South Wales. The
substantial projected expansion of CSG in Queensland suggests that gas flow patterns may
also change, with relatively less gas flowing north from Victoria and more gas flowing south
from Queensland (AEMO 2009).
From 2015 it is expected that coal seam gas will also be converted to LNG. There are currently a
number of CSG-LNG projects being planned around Gladstone (ABARE 2009c); however, some
of these projects may not proceed for several years. Some may confront changes in economic
conditions or may be targeting the same market opportunities. However, if all these projects
were developed over the medium term, they would have a potential combined capacity of up
to 43 million tonnes a year by 2020.
The significant gas resource base is capable of meeting both domestic and export demand
over the next 20 years and beyond.
17
Australian gas markets (PJ)
average
share (%) annual growth (%)
2007-08 2029-30 2007-08 2029-30 2007-08 to 2029-30
Eastern market
Production
Conventional 574 353 28 4 -2.2
Coal seam gas 118 2 507 6 30 14.9
Total 691 2 861 34 34 6.7
Western market
Production 1 091 4 968 53 58 7.1
Northern market a
Production 257 677 13 8 4.5
Australia 2 040 8 505 100 100 6.7
a Includes Joint Petroleum Development Area (JDPA).
46
Australian energy projections to 2029-30 abare.gov.au 10.02
In 2007-08, gross natural gas production in the Northern Territory (including imports from the
JDPA in the Timor Sea for LNG production in the Northern Territory) is estimated to have been
257 petajoules. By 2029-30, gross natural gas production in the Northern Territory is projected
to reach 677 petajoules, growing at an average annual rate of 4.5 per cent. Gas supply to the
northern market (excluding LNG exports) is projected to meet demand over the outlook
period, increasing from 57 petajoules in 2007-08 to 93 petajoules in 2029-30. This growth will
be underpinned by gas consumption necessary for conversion of natural gas to LNG at the
Icthys processing plant and increased use of gas for electricity generation.
Crude oil production and net imports
Geology, combined with world oil prices and exploration activity, has a significant influence on
the level of domestic oil production. A large part of current Australian oil production is sourced
from mature oil fields with declining reserves. The latest available estimates of recoverable
oil resources are approximately 8414 petajoules (1431 million barrels), located mostly in the
Carnavon and Gippsland basins (Geoscience Australia and ABARE 2010). However, Australia has
many prospective offshore areas that are yet to be drilled and explored. Adding to Australias
oil resources, there are substantial resources of condensate (16 170 petajoules) and LPG (6210
petajoules) associated with the major gas fields on the North West Shelf and in the Browse and
Bonaparte basins.
In 2007-08 Australias crude oil production was equivalent to around 70 per cent of refinery
feedstock, meaning that Australia was a net importer of crude oil. However, around 62 per cent
of Australias crude oil and condensate production were exported primarily to oil refineries in
Asia.
In the projections it is assumed that suppliers will develop a small proportion of the resource
base every year in response to price signals, and bring that production to the market.
However, the reserves in existing and subsequently new oil fields are assumed to deplete as
oil is extracted. The outcome of these two effects is that indigenous production of crude oil
and condensate is projected to decline from 945 petajoules in 2007-08 to 425 petajoules by
2029-30 (table 15).
Domestic production of naturally occurring LPG is projected to increase at a rate of 4 per cent
a year, reaching 243 petajoules by 2029-30 (table 15). The combined production of crude oil
and naturally occurring LPG in Australia is forecast to decline over the outlook period, from
1048 petajoules in 2007-08 to 668 petajoules in 2029-30.
Consumption of liquid fuels (excluding petroleum products), on the other hand, is projected
to continue to increase from 1667 petajoules in 2007-08 to 2443 petajoules by 2029-30 (gure
m). This gap between supply and demand is exacerbated by a significant proportion of the
growth in domestic production of crude oil and naturally occurring LPG being concentrated
in the Carnarvon and Browse Basins, in north-western Australia. As a result, it is reasonable
to assume that this supply of crude oil and naturally occurring LPG will largely be exported
to Asia for processing, as opposed to supplied to the domestic market. As a result, the ability
of domestic production to meet domestic demand is likely to be lower than implied by the
simple comparison of production and consumption.
Australian energy projections to 2029-30 abare.gov.au 10.02
47
The demand for petroleum product imports is determined by domestic oil production and
end use consumption of petroleum products, and also by domestic petroleum refining
capacity. Australias refining capacity is not expected to expand given increasing competitive
pressures from larger refineries in South-East Asia in particular. For a given domestic
production and consumption outlook, petroleum refining capacity constraints may result in
lower crude oil imports and, simultaneously, higher imports of refined products.
The refining industry also uses petroleum products as an energy input to convert oil feedstock
into a range of petroleum products. Around 6 per cent of gross refinery output is used on-site
in the conversion process, in addition to small quantities of natural gas and electricity.
With declining oil production, Australias net trade position for liquid fuels is expected to
worsen, with net imports increasing by 3.3 per cent a year over the projection period (table
16).
Oil and LPG balance
m
PJ
500
1000
1500
2000
2500
2029
-30
2027
-28
2025
-26
2023
-24
2021
-22
2019
-20
2017
-18
2015
-16
2013
-14
2011
-12
2009
-10
2007
-08
consumption production net imports
48
6
The outlook presented in this report represents a significant turning point from ABAREs
previously published projections. The current projections show that Australian energy
consumption will continue to grow over the next 20 years, albeit at a lower rate than
experienced in the past 20 years, as a result of a range of market and policy drivers.
However, the expected transformation in the Australian energy landscape is even more
evident in the composition of the energy mix. Driven by policies designed to move Australia
toward a low emissions economy, these projections point to a shift to low emission
technologies over the outlook time frame. With the RET and a 5 per cent carbon emissions
reduction target, non-renewables are expected to account for 92 per cent of Australias
primary energy mix in 2029-30. This represents a decline from their overall share in 2007-08
(95 per cent).
Within the non-renewables category, there is expected to be a marked increase in the
use of gas (natural gas and coal seam gas), primarily for electricity generation (the largest
user of primary energy), and LNG production. Gas-fired electricity generation is based on
mature technologies with competitive cost structures relative to many renewable energy
technologies. As such, it has the potential to play a major role as a transitional fuel until lower-
emission technologies become more cost effective.
Notwithstanding the bullish outlook for gas, renewable energy is projected to have the
strongest growth prospects. Within this cluster, the largest expansion is expected to apply
to the lowest cost and relatively mature renewable energy technology; namely, wind energy.
However, the results also support a small but growing contribution from solar energy and
geothermal energy. Much of this growth will be driven by the RET and other government
initiatives, which are designed to accelerate the development and deployment of renewable
technologies.
The transition to a low carbon economy will require long-term structural adjustment in the
Australian energy sector. While Australia has abundant and diverse energy resources, this
transformation will need to be underpinned by significant investment in energy supply chains
to allow for better integration of renewable energy sources and emerging technologies into
energy systems. While the energy market framework has been assessed as generally capable
of supporting this transition, changes to market settings within the framework will be required
(AEMC 2009). It will therefore be critical to ensure that the broader energy policy framework
continues to support cost-effective investment in Australias energy future, and timely
adjustments to market settings in response to emerging pressures and market developments.
Conclusions
49
References
ABARE 2010, Australian commodities, March quarter, vol. 17, no.1, Canberra, http://www.abare.
gov.au/publications_html/ac/ac_10/ac10_March_a.pdf
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abare.gov.au/publications_html/ac/ac_09/ac09_Dec_a.pdf
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51 51
02.09
RESEARCH FUNDING ABARE relies on nancial support from external organ isations
to complete its research program. As at the date of this publication, the following or-
ganisations had provided nancial support for ABAREs research program in 2009-10.
We gratefully acknowledge this assistance.
AusAID
Australian Fisheries Management Authority
Australian Government Department of Climate
Change
Australian Government Department of the Envi-
ronment, Water , Heritage and the Arts
Australian Government Department of Resources,
Energy and Tourism
CRC Plant Biosecurity
CSIRO (Commonwealth Scientic and Industrial
Research Organisation)
Dairy Australia
Department of Primary Industries, Victoria
DN Harris and Associates
European Commission
Fisheries Research and Development Corporation
Fisheries Resources Research Fund
Forest and Wood Products Australia
Grains Research and Development Corporation
Grape and Wine Research and Development
Corporation
Horticulture Australia
International Food Policy Research Institute
Land and Water Australia
Meat and Livestock Australia
National Australia Bank
OECD
Rural Industries Research and Development
Corporation
The Treasury